1
vote
0answers
41 views

Binary American Call Option (Cash or Nothing)

Suppose we have a stock with current price $S(0)=X$ and the interest rate is zero. When the stock reaches level $\$ H$ for the first time ($H>X$), the option can be exercised and its payoff is $\$ ...
0
votes
1answer
37 views

AUD Swap Reference Rate?

So I understand that BBSW is the reference rate used in AUD swap transactions since AUD LIBOR has been discontinued. If I want to build a curve out of the reference rates used to price AUD swaps, I ...
0
votes
1answer
50 views

L1 norm regularization of Markowitz portfolio in matlab

Markowitz portfolio with L1 norm regularization added L1 norm regularization based on the original model. The constraint equation is as follows: The following code is the original Markowitz ...
0
votes
1answer
31 views

Monthly market value data of indices: where to get?

I am currently working on a paper related to portfolio optimization. As of this moment, I am considering to use a dataset consisting of the following indices: MSCI World MSCI Emerging Markets SP ...
2
votes
3answers
157 views

Candlesticks: timestamp on open versus close

It seems there is not a universal rule on how should the timestamps of candlestick data be set. I have the impression that using a timestamp on open is more common (i.e.: a 1-Minute candle with a ...
0
votes
0answers
21 views

Principal Components based term structure and stochastic market price of risk

Suppose I would like to define an affine term structure model for interest rates using the 3 principal components of level, slope and curvature. Then if I would like to add a stochastic market price ...
0
votes
2answers
30 views

Value At Risk for Long and short position with same maturity and same traded price

I am not a quant geek.I always have doubt what should be the VaR output for portfolio contains long and short of the same maturity @ same traded price. e.g. CME corn future of sept expiry ...
1
vote
0answers
34 views

What is a good statistical test on stock prices to indicate a company's value has changed?

My current test is to take monthly proportional price changes for stock XYZ and subtract out the proportional changes of the S&P500. Then compare the mean of a sample of XYZ-S&P (e.g. trailing ...
0
votes
1answer
39 views

Replicating option strategies

I was curious if there was any references to replicating option strategies i.e. bull spread, bear spread, butterfly, strangle, straddle, etc...? Also what is the insight into replicating of these ...
1
vote
2answers
77 views

Why not delta of Call option is stochastic or random variable?

Delta of an option is defined as ratio of change in price of call option to change in price of underlying securities. If, $c_t$ is call option price at time $t$ and $S_t$ is the price of underlying ...
0
votes
3answers
75 views

Linear combination of payoffs of bull and bear spreads

Write the following payoffs as linear combination of call options with different strikes and possibly some cash and give the closed form formula for them. Attempted solution: The payoff for the bear ...
2
votes
1answer
103 views

Linear combination of Payoffs using Black-Scholes

Write the payoffs in Figure 3.8 as linear combination of call options and derive a closed form formula for the Black-Scholes price, the Delta, and the Gamma of them. All the Greeks of the option are ...
0
votes
1answer
31 views

two-period binomial model, with price that is path-dependent

Consider a two-period binomial model for a risky asset with each period equal to a year and take $S_0 = 1$, $u = 1.03$ and $l = 0.98$. How do you price a look-back option with ...
0
votes
2answers
65 views

Two-period binomial model with dividends

Consider a two-period binomial model for a risky asset with each period equal to a year and take $S_0 = 1$, $u = 1.15$ and $l = 0.95$. The interest rate is $R = .05$. a.) If the asset pays 10% of its ...
6
votes
1answer
143 views

Obtaining risk-neutral probability from option prices

Suppose I have the following data (for the current stock and option prices of the Bank of America) Strike Last IV Probability 4 8 5.43 0.5813566 0.0000000 7 11 2.45 0.2868052 ...
0
votes
2answers
34 views

Does a 1Y swap depend on zero curve beyond the 1Y point?

When using market swap rates to calibrate a discount curve, it seems that the PV of a 1Y swap depends on the zero curve at points beyond the 1Y mark. For example, a USD 1Y swap with trade date today ...
2
votes
1answer
36 views

Loss given default for Agency MBS

The question is regarding the LGD of Agency MBS. Although Agencies never defaulted, the Basel framework requires to calculate the Agency MBS LGD for capital requirement. The closest benchmark I can ...
4
votes
1answer
113 views

Link between Vega and Gamma

"The vega is the integral of the gamma profits ( ie expected gamma rebalancing P/L) over the duration of the option at one volatility minus the same integral at a different ...
0
votes
0answers
14 views

Calendar spreading and difference in cash and futures

"Often the calendar spreading gives rise to two different levels of gamma: a long gamma in one maturity against a short gamma in another one. This may be stable except that the two maturities might ...
2
votes
2answers
72 views

Yahoo finance: download adjusted close prices of different stocks in one file

I am trying to download adjusted close prices of different stocks from yahoo finance. I used "Download to Spreadsheet" to download historical prices for each stock and then join these files into one. ...
1
vote
0answers
22 views

Issue on pricing bond using RQuantLib

trying to pricing a simple bond using RQuantLib, but cannot get the right values. For example, consider a bond with 2% annual coupon rate and flat interest rate of 3%, a 5 year maturity, and \$100 ...
3
votes
1answer
71 views

Using limit orders or stop orders and gamma

From Dynamic Hedging by Taleb: Risk Management Rule: Option trader lore states that when long gamma, use limit orders. When short gamma, use stop orders. I cannot understand why this is and the ...
3
votes
1answer
72 views

Pricing of swaps

I have a (hopefully) elementary question about forex swaps. Most feeds will have a near and a far leg (or more legs for more exotic swaps). I appreciate that "buying the swap" involves locking in ...
0
votes
0answers
7 views

Forex calendar with news prior to 2007

I have been googling for sources of forex calendar with news like the one in http://www.forexfactory.com/calendar.php but I could not find any that dates back to 2007. Where can I find one?
0
votes
0answers
23 views

Correlated Market

Looking at two BTC Exchanges i see one is following another with a ~3minutes delay. So the following one is correlated for 100%. a) Is there any name for a strategy that benefits from this? b) How ...
0
votes
1answer
50 views

Why are there two expressions for the Black-Scholes hedging portfolio

I am new to derivatives pricing and am trying to understand why there are two different expressions for the Black-Scholes hedging portfolio. The first approach, used in books like Hull, stipulates ...
4
votes
1answer
98 views

How to price and find a replicating portfolio for a call spreads using a two-period binomial model?

Consider a two-period binomial model for a risky asset with each period equal to a year and take $S_0 = 1$, $u = 1.03$ and $l = 0.98$. a.) If the interest rate for both periods is $R = .01$, find the ...
1
vote
1answer
53 views

A clarification on the Heston option pricing formula

I have carefully reconstructed all the computations that lead to the Heston option pricing formula for a call. I end up with this formula for the "adjusted" probabilities $$ P_j\left(x,v,T;\ln ...
0
votes
2answers
40 views

Dealers becoming synthetically short an out-of-the-money option

"When dealing with a large-size position, dealer, upon exercise, synthetically become short an out-of-the-money option." How does this work, I cannot see why this happens synthetically in ...
0
votes
0answers
17 views

Use of cash delta vs forward delta and the mirror image rule

There has been no mention in this text of why this formula uses forward delta not cash delta. Why should have this been obvious to the reader? How can a put be delta neutral at 30%, what does this ...
0
votes
1answer
36 views

Known future volatility and difficulty in predicting final P/L

I have started Chapter 1 of Dynamic Hedging by Taleb and it starts by saying "Even if traders knew the exact future volatility but hedged themselves (rebalanced the gamma) at discretely spaced ...
2
votes
1answer
67 views

How many ways can QuantLib handle the price of option on its maturity date?

I have been playing with QuantLib for some time. This is a great framework with amazing design and capabilities. However, one thing that I find hard to understand is the way it handles the price of ...
1
vote
1answer
48 views

Example Security Giving Stock Dividends?

I'm looking for a security that has some stock dividends. Any suggestion? There are plenty of websites explaining what is a stock dividend or plenty referencing companies with cash dividends but all ...
1
vote
0answers
39 views

Pricing function $P(S,t)$ is convex in $S$ for all $t$

I am now reading Alternative Characterization of American Put Options by Carr et all (available at http://www.math.nyu.edu/research/carrp/papers/pdf/amerput7.pdf). There is a theorem called 'Main ...
0
votes
0answers
25 views

Mutual fund cost function estimation vith panel regression

I am trying to estimate cost function for 15 mutual funds: equity funds, bond funds and real estate funds in EViews. I have 15 mutual funds and data for Net Asset Value (NAV), 1 year performance as a ...
3
votes
1answer
42 views

Where to find Investment home bias data & Historical country weight in World MSCI

I need the following data and struggles to find it, maybe some of you can help me. Note: I'm a student and in our university ain't Bloomberg nor Reuters. Investment home bias, e.g in 2012 US ...
3
votes
1answer
48 views

Calculate excess returns for Sharpe Ratio with today's or past risk free rate of return?

I am struggling with the calculation of the Sharpe ratio. I am wondering whether to calculate the daily excess returns with today's risk free rate of return or the risk free rates corresponding to the ...
1
vote
2answers
29 views

type mismatch in Rquantlib Bond.cpp

I've been tracing back through bond.cpp and find the following in FloatingBond() : double dayCounter = Rcpp::as<double>(datemisc["dayCounter"]); ...
1
vote
1answer
24 views

Concept Question Regarding Short Rate Model

I have a conceptual question that needs help. Does anyone know whether the short rate model generate discount rate or forward rate?
1
vote
0answers
17 views

Bootstrapping p values in linear regression in R

Can someone help me with a code how to bootstrap p values in R using Boot or boot package? regCSS30 <- dyn$lm(lag(eval(parse(text="HV")),-30) ~ lag((eval(parse(text="CSS30"))),0), ...
4
votes
1answer
77 views

Lookback option to find stock price

Consider the payoff equation for the lookback option $\psi(T)= max(S_t-S_T)$, where $t\in[0,T]$ and $S_t$ is modeled by the geometric Brownian motion with constant parameters. Find the price of stock ...
0
votes
0answers
18 views

Second stage in Hull-white construction of trinomial tree

In Brigo's Interest Rate Models - Theory and Practice, there is a section about constructing a trinomial tree to approximate the short-rate process in Hull-White. In the first stage, the following ...
1
vote
0answers
32 views

How do most arbitrage opportunities account for unknown volume at a ticker price?

So, from a conceptual level, arbitrage seems quite forward... buy at one place at one price, and sell somewhere at a higher price. However, after doing some initial digging it appears to be not quite ...
0
votes
2answers
67 views

What does this options' data mean?

I've got myself some data on SPX optons which looks like this: ...
2
votes
1answer
34 views
1
vote
1answer
71 views

ES not elicitable

Expected Shortfall is not elicitable as some papers have pointed out. That simply means that there is no scoring function that elicits ES. My question is, does this imply that Expected Shortfall ...
4
votes
1answer
74 views

Deriving Black Scholes PDE under stock as a numeraire

There are many ways to derive the Black Scholes PDE. The Martingale way would be to demand the option price is driftless according to particular measures. Below I derive the correct PDE using the bank ...
1
vote
1answer
21 views

Difference between CRSP equal weighted and composite index

I am a bit confused about the overall CRSP total market return index and the equal weighted index. I know that the value weighted index places a weight on each firm by their respective market values ...
1
vote
1answer
48 views

Potential Arbitrage profit or proof problem

So the question asks: Consider 4 following European call and put options with the same maturity time: Call option with strike price $100$ sell for $45$ Call option with strike price $110$ sell for ...
1
vote
1answer
116 views

How to implement momentum strategy using R

I am trying to see if momentum strategy has a profitability in a bond market. I have a bond dataset which is a panel data and it is monthly. It looks something like the table below. For each month ...

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