4
votes
1answer
123 views

How to use the Girsanov theorem to prove $\hat{W_t}$ is a $\hat{\mathbb P}$-Brownian motion?

Let $T > 0$, and let $(\Omega, \mathscr F, \{\mathscr F_t\}_{t \in [0,T]}, \mathbb P)$ be a filtered probability space where $\mathbb P = \tilde{\mathbb P}$ (risk-neutral measure) and $\mathscr F_t ...
0
votes
0answers
36 views

Skewed Generalized Error Distribution in GARCH modelling

I am trying to estimate GARCH models with the use of Theodossiou's (2000) Skewed Generalized Error Distribution. I am modifying matlab's ARMAX-GARCH-K toolbox to calculate this model. I am calculating ...
1
vote
1answer
57 views

Path Dependent Options - Which choice of model?

Can someone please help elaborate/clarify the below statements? I've heard about them from people but would like to know some more detail behind these statements.. - 1) SABR is not useful in pricing ...
3
votes
2answers
107 views

Sharpe Ratio : why the normalization factor?

I try to understand why a $\sqrt{252}$ normalization factor is useful for Sharpe Ratio: Let's compute the Sharpe Ratio for this imaginary portfolio, for various sampling periods: ...
3
votes
2answers
149 views

How to trade leveraged ETFs

Leveraged ETFs (LETFs) are known to lose value over time due to the "volatility decay" effect. What're the most common strategies for trading LETFs to take advantage of this volatility effect? Also, ...
5
votes
1answer
102 views

Central bank interest rates: are they quoted annualized?

After a little research on interest rates of different countries I figured out that they are more complicated than I thought and the meaning of them varies country by country. For example, the U.S. ...
0
votes
0answers
22 views

Including intercept and trend in ADF of differenced series

When specifying that the trend and/or intercept be included in the ADF output, does the trend/intercept election follow through to the ADF tests of differenced data as well? To clarify further, I ...
0
votes
1answer
58 views

What is the current state of microstructure/order book analysis?

I know it's a broad question, but I'm curious as to the current state of microstructure analysis, specifically whether there's anything 'actionable' that people have discovered. Would also be ...
1
vote
1answer
35 views

Double no touch option with four barriers

The double no touch (also known as a range binary) is an option with two American barriers. You define one barrier above the underlying asset and one below it. If during the option's lifetime the ...
1
vote
0answers
12 views

Which rate have to be considered by using multiliteral netting?

I do have a netting structure consisting of four companies (A,B,C,D) and a netting center. The center also takes place in the netting process. The netting center uses the EUR as currency. Company A ...
1
vote
1answer
134 views

ARMA+GARCH prediction with package rugarch (R)

I am analyzing FTSE 100 series, from 2007-01-01 to 2010-12-31 (university exam homework). I have to use the data 'til 2010-11-30 as sample, and the remaining (23) observations as in-sample forecast ...
3
votes
0answers
82 views

Is Low-Volatility expensive these days? How can we analyze this?

Low volatility investing became somewhat fashionable in recent years. In general there are two approaches to this Ranking stocks of a certain universe by either stand-alone volatility or by beta and ...
1
vote
1answer
70 views

Long Forward Rate Agreement, short Eurodollar futures

For this question If you are long a FRA and short a ED future with the same fixing dates, do you have positive convexity or negative convexity? The answer is positive convexity, because a ...
3
votes
1answer
58 views

Log-likelihood of skew-t distribution

I am trying to estimate GARCH models with the use of Hansen's (1994) skew-t distribution. I am using matlab's ARMAX-GARCH-K toolbox, where the log-likelihood is calculated as: ...
1
vote
1answer
33 views

Value at risk in dollars vs. log returns

I have a quick question about this remark in Tsay's book "Analysis of Financial Time Series" (3rd edition). He says that $$ \text{dollar VaR} = \text{Value} \times \text{log return VaR} $$ and that ...
1
vote
0answers
34 views

Simulating Option Positions VaR with Monte Carlo in Python

I'm trying to calculate VaR for overall option positions. Currently I do a MC simulation for the underlying, and derive the theoretical value of the option from those theoretically. Then I calculate ...
1
vote
0answers
33 views

Where can I find bonds time series?

I want to study dependence and correlation between bonds and CDS. I have already found a large CDS database of time series there: www.datagrapple.com I am looking for such a similar database (with an ...
2
votes
2answers
82 views

Confusion on stationarity vs deterministic trend

Sorry for the newbie inquiry but I'm having a little trouble making sense of stationarity and how a the presence of a time trend impacts this. I'm working on a model for operating margins and as a ...
3
votes
1answer
238 views

Bloomberg data redistribution policy

I've looked through the Bloomberg website, but haven't found any information about available license plans. I'm curious whether it provides any license that allows you to re-distribute data requested ...
1
vote
2answers
34 views

Why to 2 methods to calculate bond price with semi annual return give different answers?

I am confused as 2 methods give different answers. The difference lies in the "to the power" numbers for discounting. Example: 2 year semi annual bond (4 periods), $1m annual Coupon Payment, 5% Yield ...
0
votes
0answers
18 views

Interest rate: Treasury Note, Stripped Principal

Ok, So I'm a little confused about this. I want to solve an exercise and derive an optimal product, but in order to do that, I need the interest rates for each of the maturities of my options. I ...
5
votes
0answers
149 views

How should option prices differ when using the Heston versus the Black-Scholes model?

I am running Monte Carlo simulations for a European Call using Heston Model and I am trying to compare them with prices calculated using Black-Scholes formula. I am not quite sure if the prices I get ...
0
votes
1answer
18 views

Show that being Long a caplet & short floorlet (both with strike price K) is equivalent to a FRA where you pay the fixed rate K

How do you show that being long a caplet and short a floorlet (both with strike K) is equivalent to a Forward Rate Agreement where you pay the fixed rate K?
0
votes
1answer
85 views

Price of a Stock: What is it?

My limited understanding of stock prices is that according to theoretical arguments, the price of an asset is generally given as:$$P_{A}=E_{0}\,\sum_{t=0}^{\infty}\frac{C_{t}}{(1+r)^{t}}$$ whereby ...
0
votes
1answer
96 views

Transforming daily simple returns into weekly

I am trying to transform daily simple returns into weekly returns. I am using the following R code: ...
1
vote
0answers
20 views

Through the Cycle calibration of PD values

It is a known fact that default rates seem to exhibit cyclic behavior. Most probability of default models use one-year averages of default rates to calibrate the models. The one-year averages should ...
3
votes
2answers
133 views

Data exported from Capital IQ, FactSet, Bloomberg, Compustat

I'm looking for reliable data on US equity fundamentals, but not sure which vendor provides these features: Unlimited data export Coverage of disbanded entities (bankruptcies, M&A) Financial ...
1
vote
1answer
67 views

PPPN: premium with real market data

A few days ago, I posted a question about PPPN's (partially principal protected notes), which can be found here:PPPN: participation rate, stocks and premium. A PPPN in short is a structured product ...
1
vote
1answer
138 views

Trading Interview Question (Bullish, Bearish)?

I recently had a trading interview, and they asked this question. However, I had no idea how to answer it, and I was wondering if you could help me undersatnd it. Say you have a set of returns ...
0
votes
0answers
25 views

Variable coupon Step up Step down bond

How do you price a variable step up step down coupon bond? From my understanding the coupon schedule should already be laid out and these should ideally have a call feature. However, I do have a bond ...
0
votes
1answer
43 views

Please help me with this problem of double exponential distribution

please help me with this problem of double exponential distribution
0
votes
1answer
36 views

Is Eurodollar borrowing close substitute for Fed funds borrowing?

It is often stated that eurodollar borrowing is clost substitute for Fed funds borrowing. In other words, when US banks cannot fund themselves domestically, they might go to the eurodollar market and ...
0
votes
0answers
7 views

Is there a free Source for currency forward rates into Excel? [duplicate]

Is there a free (or at least very cheap) service/api out there I might be able use to get yesterday's closing currency forward rates (and spot) into excel/csv without having to copy paste values from ...
6
votes
1answer
359 views

Arbitrage opportunity interview question

I have seen this interview question mentioned in a couple of places: There are three call options on the market, with the same expiry and with strikes 10, 20, and 30. Suppose the call option with ...
3
votes
0answers
51 views

Modelling the Cost of Risk

I would like to read something about the cost of risk. Could anyone recommend some reference about how it is calculated or modelled?
1
vote
0answers
16 views

Are COFER unallocated resource changes meaningful?

I've been looking at the currency reserves (COFER) data on the IMF site: http://data.imf.org/?sk=E6A5F467-C14B-4AA8-9F6D-5A09EC4E62A4&ss=1408202647052 What caught my eye was the 5% drop in ...
0
votes
0answers
64 views

Hedging American Derivative

Reading the book by Andrea Pascucci "PDE and Martingale Methods in Option Pricing", pp. 84, I found something that appears inconsistent to me. It concerns the construction of the optimal portfolio for ...
0
votes
1answer
43 views

does local volatility make any sense when I only focus on vanilla option?

can someone explain me the usage of local volatility? details will be appreciated. Is it of any importance when I now are doing market-making? Please do not laugh at me as I am totally new in this ...
0
votes
0answers
48 views

Prove that $E[g(X_T)|\mathscr F_t] = E[g(X_T)|X_t]$

Let $T > 0$. Let $(\Omega, \mathscr F, \{\mathscr F_t\}_{t \in [0,T]}, \mathbb P)$ be a filtered probability space where $\mathscr F_t = \sigma(W_u, u \in [0,t])$ where $W_t$ is standard Brownian ...
3
votes
1answer
64 views

Why is issued shares less than outstanding shares

We know that issued shares = outstanding shares + treasury shares. So issued shares must be greater than treasury shares by definition. However, Starbucks' fiscal 2014 From 10-K reports "Common ...
3
votes
0answers
41 views

Turn of the year

I understand the basics of "Turn of the year" effect. But I am wondering why does this effect sometimes cause overnight rates around year end to dip below normal overnight rate levels (i.e. negative ...
6
votes
1answer
174 views

Dec 16: FED rate hike?

Various news articles state that next Wednesday a rate hike by the FED was expected. Yet when I look at fed-rate futures, nobody seems to expect that: ...
0
votes
1answer
16 views

libor rate - local martingale

I am a newbie for Libor rates and all these questions... Let be : $L(t,\delta)$ the Libor rate and $L_{t}(T,\delta)$ the forward Libor rate. Let's define : $Lb(T,\delta):=1+\delta ...
1
vote
0answers
39 views

What's the problem with simple EMA-crossover strategies?

I'm looking at charts of bitcoin here: https://bitcoinwisdom.com/markets/kraken/btceur with the option of displaying a short term as well as a long term EMA. It seems to me that if I were to buy ...
1
vote
1answer
49 views

How to get real interest rate from Nominal spot rates?

I have the nominal spot rates. Based on the Fisher equation , how to get the real interest rate ($r$) and the "expected inflation" ($\pi$) ?
0
votes
1answer
66 views

PPPN: participation rate, stocks and premium

I'm a student of financial engineering and am very new to all of this stuff. Now, I'm trying to make an "example of a beginners exercise", but alas, I don't have any clue on how to solve or even on ...
1
vote
0answers
18 views

jump-resetted diffusion process

I'm working on a model in which there are two processes, $H$ and $L$, and the final variable to model starts as $H$ and then whenever a jump occurs, an instance of the $L$ processes starts and ...
1
vote
1answer
35 views

Drivers of equity returns: dividend yield, change in P/E and dividend (or earnings) growth

In an NBIM paper I read the following: "... one can break down the total equity return into the dividend yield (the starting valuation), the change in the P/E ratio (the change in valuation) ...
1
vote
1answer
33 views

Derive Perpetual Bond Price

It is known that a perpetual bond with coupon $c$ has price $$P=\frac{c}{r}$$ How do you get to this price? Is $r$ stated in discrete or continuous compounding?
2
votes
1answer
77 views

Pricing homogeneous Basket Default Swap

Consider a basket with $K=10$ names. Default times of the names, $\tau_k$, are i.i.d. random variables with distribution $P(\tau_k \leq t) = 1 - e^{-\lambda t}$. Suppose that each name in the ...

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