1
vote
1answer
220 views

Interpret alpha's on Dual-Beta Model regression Results

I am trying to calculate the Dual-Beta for Apple (AAPL) by running a regression against the Spyder's ETF (SPY) & using the 10-yr Risk Free rate. The formula for the dual beta is: ($r_{AAPL}-r_f) ...
3
votes
1answer
250 views

Does Nelson-Siegel require adjustments to yield curve input data?

I am attempting to gain a better understanding of the limitations of the Nelson-Siegel model as described in Estimating the Yield Curve Using the Nelson-Siegel Model. As I have been playing around ...
0
votes
1answer
48 views

Normal vol - convention

apologies for the simplicity of the question, but I was wondering: what is the quoting convention for normal (bps) volatility? Say I have the following time series of data: Date Close Abs Change 20-...
0
votes
1answer
249 views

Factoring risk premium in to Forward Rate calculation

This is a self study question. I'm calculating a forward rate. Specifically, I have that in a country X, the Spot Rate is 5X/1US. I also have that the 1 year interest rate is 13% in country X and ...
1
vote
3answers
198 views

(Beginer on bond market) References on callable bond's pricing

I am searching for references on pricing callable bonds. I've not find any rigorous mathematical approach on the web. All I found was some soft approaches in a discrete framework. Edit: First of ...
2
votes
3answers
628 views

Calibration of a GBM - what should dt be?

I have a time series of daily data that I want to calibrate GBM parameters $\mu$ and $\sigma$ to. Using the discretized solution $$ S_{t_{i+1}} = S_{t_i}\exp\left(\left(\mu - \frac{\sigma^2}{2}\...
7
votes
3answers
1k views

How to exploit calendar arbitrage?

Say we are looking at European Call options in a toy environment with zero deterministic intereset rates, a stock paying no dividends, no repo rates etc. Let C(T,K) be the price of a call with expiry ...
3
votes
0answers
66 views

Is it important to equalize the minimum price fluctuation in pairs trading?

For example, suppose we were trading a strategy which buys one Brent contract and sells one Gasoil contract. The minimum price fluctuation for a Brent contract is \$10, and the minimum price ...
1
vote
1answer
82 views

Market Timing Performance for a single stock

It seems there are models that study the market timing ability of funds. Models such as the Treynor-Mazuy and Merton-Henriksson. One can also study the bull beta and compare it to a bear beta. My ...
3
votes
1answer
516 views

How to calculate the Sharpe ratio for market neutral strategies?

Suppose I am long one stock and short an index in a ratio effectively making market beta as zero and I close the position with some positive P&L. How should I calculate the return for the ...
5
votes
2answers
16k views

What is the difference between asset management and wealth management?

What is the difference between this two concepts?
4
votes
3answers
1k views

What is an efficient method to find implied volatility?

I have a code that finds the implied volatility using the Newton-Raphson method. I set the number of trial to 1000 but sometimes it fails to converge and doesn't find the result. Is there a better ...
2
votes
2answers
1k views

How to express the Black Derman & Toy Model in a $dr=A\,dt+B\, dW$ form?

The Black Derman & Toy (BDT) model is given by $$d(\ln\,r)=\left(\theta(t)-\frac {d(\ln\sigma(t))}{dt}\ln r\right)\,dt+\sigma(t) \, dW.$$ How can one rewrite the BDT model as $dr=A\,dt+B\, dW$, ...
1
vote
1answer
113 views

How to model the effect of earnings surprises on long-term returns?

I'm looking into modeling the relationship between EPS announcement surprises with long-term returns (1 quarter to 3 years with intervals). I've based my current methodology off papers looking at the ...
0
votes
0answers
415 views

How to calculate returns of backtested strategy?

Lets say I have some strategy (long/short) backtested for certain period. Strategy has entries/exits only at the end of the day and may have overnight positions hold. Now I would like to compare ...
-1
votes
1answer
68 views

Equity Chart - design and granularity

I am looking to build a web based Equity chart to display performance of FX trading strategies. I would like to hear opinions and advice on a few areas that I am unsure about. Granularity Equity ...
4
votes
1answer
712 views

SABR calibration: simple explanation and implementation

I would like to learn more about the SABR model and ho it is used in modeling smiles in equity, FX and rates markets. How would you explain the process and its implementation in simple steps? Any web ...
1
vote
0answers
47 views

Pricing inflation lags

I've been looking into a short piece of maths I found on pricing inflation with payment delays, and was hoping someone could confirm whether my understanding was correct or if the maths isn't quite ...
3
votes
1answer
497 views

How trading in currency pair works, underlying techniques and mechanisms

I am somewhat experienced in Forex trading, but I have a question which has bothered me for quite some time. If we for instance go back in time four months, to before the beginning of value loss the ...
3
votes
1answer
160 views

How to get Black Scholes' Geometric Brownian Motion differential form form the closed form?

My instructor has mostly self contained notes, where our textbook is mostly a reference. She has it written that: $$S_t = S_0e^{(\mu - \frac{\sigma^2}{2})t + \sigma W_t} \iff dS_t = S_t(\mu dt + \...
2
votes
1answer
72 views

Variability in the Expected Shortfall estimator

Are there any results for calculating the variability in the Expected Shortfall measure. I am looking for Large sample confidence intervals under Normality for Expected Shortfall or calculation of ...
3
votes
4answers
237 views

Portfolio Optimization using S&P Universes

Assuming a set portfolio optimization problem, if all optimization inputs are kept constant, what would you expect, in terms of results, if you run the same optimization using the S&P500 as ...
1
vote
0answers
1k views

Calculating the efficient frontier from expected returns and SD

I'm trying to calculate the efficient frontier (and the optimal portfolio at the Sharpe ratio) given two vectors for a portfolio: (1) expected returns and (2) historical standard deviations. I would ...
0
votes
1answer
88 views

Arbitrage-free market for continuous logreturn distribution?

Is it true, that a one-period market say $(0,t)$ is arbitrage-free if the logreturn for $S_t$ is continuously distributed on $\mathbb{R}$? I.e., for continuous distributions on $\mathbb{R}$, there ...
2
votes
1answer
107 views

How literature come up with risk-neutrality problem, considering that market is not really risk-neutral?

I am searching on real-option pricing deficiencies to encounter risk-neutrality. As we know risk-neutrality assumption, is not hold in real situations. The problem is that I could not classified ...
5
votes
3answers
382 views

How is stock data objectively different to this random walk?

I have a random walk that is generated as so using python, numpy, and matplotlib ...
1
vote
0answers
169 views

Incompatibility of Lognormal Forward Model (LMM\BGM) and Lognormal Swap Model

In his paper On the distributional distance between the Libor and the Swap market models (and also in his book about IR modeling) D.Brigo says: 10, 11, 12 are defined in the end of message. Do I ...
3
votes
2answers
3k views

Build a customizable trading engine in python [closed]

I am planning building fully customizable backtesting trading engine in python from scratch as a open source project, the main features i am considering is, It should be fully customizable from ...
4
votes
2answers
304 views

Uniqueness of equivalent martingale measure in Black Scholes-Model

Let's consider standard Black-Scholes model with price process $S_t$ satisfying SDE $$dS_t = S_t(bdt + \sigma dB_t)$$, where $B_t$ is standard Brownian Motion for probability $\mathbb{P}$. I ...
1
vote
1answer
363 views

Understanding how to calculate tracking error

I have come across two ways of calculating Tracking Error (TE) but i'm not sure if they are essentially the same. The first way is to calculate the standard deviation of the difference between a fund'...
0
votes
2answers
278 views

Historical data resources for Indian market

What is the best source for historical EOD data for Indian stock market? The data from Yahoo finance for some companies is not up-to-date and Google finance doesn't provide adjusted close prices. What ...
1
vote
3answers
114 views

Is there a broad currency index just like there is an equity market index?

I would like to assess the performance of currency traders so I was wondering if there is a broad currency index that can be used as a benchmark to assess the performance of these traders. The index ...
2
votes
1answer
723 views

General way to solve Partial differential equation using Feynman kac representation

Consider the following PDE on interval [0,T] $\left(\frac{\partial F}{\partial t}(t,x)+\mu (t,x)\frac{\partial F}{\partial x}+\frac{1}{2}\sigma^2(t,x)\frac{\partial^2F}{\partial x^2}(t,x)=rF(t,x)\...
2
votes
0answers
75 views

Inflation/Rates Correlation

I've been looking into a short piece of maths a colleague has written on pricing inflation with payment delays, and was hoping someone could confirm whether my understanding is correct, or if my ...
3
votes
1answer
664 views

Statistical arbitrage using eigen portfolios

I was trying to understand below paper https://www.math.nyu.edu/faculty/avellane/AvellanedaLeeStatArb071108.pdf Page 20 explains about "Entering a trade". I wan't to know clearly what it means to ...
1
vote
0answers
68 views

PerformanceAnalytics and Annual Charting

I have seen a charts that look's like Is it possible to do something like this with PerformanceAnalytics or is there any other package for doing this? Thanks in advance
1
vote
0answers
285 views

What machine learning method is more suitable for prediction of financial time series? [closed]

I have some time series from a stock exchange market. For each of them, I want to answer the question that whether the price will grow at least p percent in the d coming days or NOT(and during these ...
0
votes
1answer
422 views

What is the formula for beta weighted delta and gamma?

I am trying to calculate the beta weighted delta and gamma for a portfolio of options of different underlying stocks, but I can't seem to find the correct formula. Can someone point me to it or a ...
1
vote
3answers
230 views

What is the name of this product?

Consider the payoff =$S_T1_{S_T>K}$ where $S_T$ is the asset price at maturity. What is this type derivative called? and is it a liquid option?
3
votes
2answers
342 views

What would be considered a good/competitive throughput for a FIX engine?

I am writing my own FIX engine and I am in the process of running some benchmarks. I am not sure whether my results are good or bad. Can someone with experience in the area provide me with some ...
3
votes
2answers
1k views

Where can I find a list of VaR and CVaR formulas for continuous distributions?

Where can I find more VaR and CVaR formulas for continuous distributions? I collected a list here:
1
vote
2answers
95 views

Weighting with restrictions, but no clear objective function?

I have 40 shares in an index and I want to weight them based on their market value, define the known value as $x_i$ In the traditional way, the weight of each share is calculated as: $w_i = x_i / \...
2
votes
4answers
10k views

Relationship between Beta and Standard Deviation

I was doing some financial analysis on two firms in the coffee industry. After calculating Beta and Standard Deviation for both firms, I seem to have stumbled on some weird phenomenon. It appears ...
0
votes
1answer
56 views

Data on banks’ leverage

Does someone know free resources to estimate the leverage of the banking and financial sector at an aggregate level? In particular I would be interested in something like Federal Reserve’s Flow of ...
2
votes
1answer
398 views

Hedging bond with CDS of different maturity

Say I buy a 10-year bond with a notional of 100k. To hedge my credit risk entirely I could buy a 10-year CDS, also on a notional of 100k. Now, if there are only 5-year CDS trading and no 10-year CDS, ...
2
votes
1answer
306 views

Expected Shortfall and Spectral Risk Measure

Not sure I am understanding spectral risk measures correctly. Why is there an equal weighting scheme placed on the tail losses in expected shortfall. Will that no bias the expected value of the loss ...
2
votes
1answer
101 views

garchOxFit in R-oxo file does not match

Could someone please help me with trying to get the Ox interface to work in R. I get the following errors as output: This version may be used for academic research and teaching only Link error: '...
6
votes
1answer
1k views

What are the main flaws behind Ross Recovery Theorem?

Stephen Ross’ new paper claims that it is possible to separate risk aversions and historical probabilities if the Stochastic Discount Factor is transition independent using Perron-Frobenius Theorem. ...
1
vote
1answer
92 views

Data on margin volumes?

I came across a Financial Times article today that said "Peaks in margin trading have been a precursor to bear runs in the past, notably in March 2000 and July 2007." I'm curious if anyone here would ...
2
votes
1answer
156 views

Negative Eonia rates

I'm curious how the current negative Eonia (Euro OverNight Index Average) rates would impact derivatives pricing. Does it mean that if I post cash collateral to you, I also need to pay you interest? ...

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