2
votes
0answers
775 views

How to compute for basis adjusted forward rate?

To give you a brief background, I'm valuing a fixed-for-float Interest Rate Swap (IRS) using Bloomberg. I put in a notional amount in (USD) and a assigned 6MO USD LIBOR as the reference index for the ...
2
votes
0answers
120 views

Game theory and antagonistic games in trading

In one of the topic here, particularly in the comments, i saw a link to the page describing connection between Antagonistic Games and finances but i cannot find it now and would appreciate if somebody ...
2
votes
0answers
121 views

Scale of Market Quakes Computation

I would like to reproduce the results in the paper "The scale of market quakes", from T. Bisig, But I am getting stuck at the computation of the Fourier Coefficients in equation (4). They are defined ...
2
votes
0answers
107 views

Beta distribution - Holding period

Let's say I have a risk factor that is defined between [0,1], such as recovery rates. Assuming I have daily data, I can estimate the "daily VaR", i.e. the tails over 1 day period, since the data is ...
2
votes
0answers
37 views

How can I break down the change in value for an inflation-linked bond

I am trying to decompose the change in value of an inflation-linked bond into two constituent parts: 1) That due to changing nominal rates on the issuer's non-linked bonds 2) That due to changing ...
2
votes
0answers
82 views

Practitioner's criterion for MC pricing convergence

Let's say I have some Interest Rates (IR) pricing model which relies on Monte Carlo pricing and I'd like to benchmark its quality and find out optimal settings (time steps & iterations) per asset ...
2
votes
0answers
38 views

what kind of test for volatility and where find the data

I am working on a model for stochastic volatility. In short, the model try to capture that the volatility goes up suddenly after a shock (war, policy, financial events, etc) and then goes down slowly, ...
2
votes
0answers
58 views

Testing for the presence of a positive or negative gamma effect

I am currently analyzing a statistic that I believe will have the effect of hedgers having a positive or negative gamma position in certain stocks. In the case where I believe hedgers have positive ...
2
votes
0answers
55 views

Discretization Schemes

I am working with two correlated SDE's and I was wondering if I could use two different discretization schemes for them. Is there maybe a reference of this being done? And can something be said about ...
2
votes
0answers
41 views

Formal Proof of Immunization Techniqu

Please correct me if I am wrong in understanding the Immunisation Technique behind bond interest rate risk management. It says that any change in interest rate can be neutralised by reinvesting the ...
2
votes
0answers
168 views

Johansen-Ledoit-Sornette Model

im trying to predict crash time by using lppl model(JLS). My codes can run, but the error is to high....I try with some other initial values, but still can't reduce the error.....How i can reduce ...
2
votes
0answers
123 views

Simple Forward Interest Rate Proof

Just trying to check my logic here: Let $Z(t,T)$ be a Zero-Coupon Bond with maturity $T$ bought at time $t$, $S_m$ be the spot interest rate for time $m$ and $S_n$ for time $n$ respectively, where $n ...
2
votes
0answers
66 views

Tick Data Poisson Process

I am trying to generate a custom tick index using two indices (Let's say australian index ASX 200 and Japenese Index NKY). Japan index ticks every 10 seconds...and australia ticks every 30/35 seconds. ...
2
votes
0answers
74 views

volume augmented garch(1,1) model in matlab

Actually I want to add volume traded of a stock in my Garch(1,1) model to forecast the volatility.In Matlab I can specify the model as garch(1,1) and then use estimate and forecast commands.But I am ...
2
votes
0answers
96 views

rugarch and rolling estimation

I use Rugarch for a long time in order to calibrate GARCH models on FX rates time series and perform simulations. I am trying to understand the ugarchroll method. However even if I can find plenty of ...
2
votes
0answers
286 views

How to price zero coupon bonds with the Monte Carlo method?

Im trying to calculate monthly ZCB bond prices with a fixed maturity T, over a period of months via Monte Carlo methods. Here is my attempt: For the first month, the price is $P_{t_0}(0,T) = ...
2
votes
0answers
378 views

What equation will convert implied yield volatility to implied price volatility?

I am trying to figure out how to turn implied yield volatility of a short-term interest rate into implied price volatility. Is there an equation to do this? I have come across the equation for a ...
2
votes
0answers
59 views

What is the main reasons to use Miltersen & Schartz (1998) model for commodity futures options

versus a standard Generalised Black and Scholes model (if there are any?) I have read the paper but I am not to sure about its practical implications as would people with more experience using this ...
2
votes
0answers
171 views

What happened to Mountain View Analytics?

I stumbled over Thomas Cover's work on algorithmic portfolio selection; apparently, an outfit called "Mountain View Analytics" attempted to implement the suggestions from Cover's research. ...
2
votes
0answers
96 views

Effective simulation of multi factor Heston model

Im looking for a quick way (as in runs quick, not necessarily is quick to implement) of simulating multiple square root processes for a stochastic volatility model, flexible enough to allow for ...
2
votes
0answers
47 views

Risk neutral measure for jump processes

How can I construct risk neutral measure for option price if active price form is: $$S(t)=S(0)\left[\exp{σW(t)+(α-βλ-1/2σ^2)t+Q(t)}\right] ?$$ Here $W(t)$ is a Brownian motion and $Q(t)$ is a ...
2
votes
0answers
293 views

Bond (yield curve) dynamics in the Forward-LIBOR-market-model

The standard Libor-Forward-Market-Models provides a way of modelling the evolution of forward rates in time. However the model does not seem to be well suited for the modelling of zero-bonds. But ...
2
votes
0answers
166 views

Weighted average implied optionlet/swaptions volatility

Let an implied volatility curve/surface is made up by optionlets or swaptions Black's implied volatility. If you wanted to price, say, a FRN with cap and/or floor, a CMS et cetera you would input the ...
2
votes
0answers
52 views

How can dividend protection be considered in the binomial model in pricing the convertible bond?

If the convertible bond has dividend-protection, how can we cater it in the binomial model? If there is dividend protection at or above 1%, can we impose input of dividend yield of 1% in the ...
2
votes
0answers
220 views

The Public Market Equivalent measure in private equity

What are the advantages and disadvantages of the Public Market Equivalent measure in private equity? Why is it that the volatility of the cash flows do not matter? This topic has been discussed in a ...
2
votes
0answers
213 views

regarding Basel III IRB method for credit risk

Would the exposures between standard method and internal rating based method for credit risk under Basel III remain same?I could not find any documents for IRB approach under Basel III. Is it still ...
2
votes
0answers
186 views

Zakamouline Optimal Hedging of Options with Transaction Costs

I've read that the Zakamouline method suggests the best optimal hedging of options when taking transaction costs into account. I've read the article but am having difficulty understanding it well ...
2
votes
0answers
80 views

The concept of an incomplete market

While skeeming the relevant literature and web-sites I noticed that mostly the concept of the incomplete market is reduced to the following statement "A market is incomplete if there are more ...
2
votes
0answers
285 views

Reasoning for Bloomberg's short rate volatilty calculation

Bloomberg, in its documentation, explains that it calculates the short rate volatility for its Hull White implementation by multiplying the e.g. 10y IRS rate (divided by 100) by the 10y cap vol. Why? ...
2
votes
0answers
68 views

Multivariate interpolation for estimating FDM in-between grid points

After implementing some FDM to price some option, there are gaps between our grid points that may be of interest. From reading around, it appears common to use bilinear interpolation to estimate ...
2
votes
0answers
282 views

Funding spread in FVA calculation

For the FVA calculation, is the funding spread (either borrowing or lending) treated as a piecewise constant function (i.e., if the length of the exposure is 5 month and I know the 3 and 6 months ...
2
votes
0answers
174 views

Calculating index arbitrage

I have a days-worth of level 2 market data. I am calculating S&P500 index arbitrage. I have a few questions about the calculation: 1) Should I be summing all the bids and asks from the stocks ...
2
votes
0answers
99 views

How will the European requirements for prudent valuation affect derivatives pricing?

The European Banking authority has published the "EBA consults on draft technical standards on prudent valuation". How will these requirements for prudent valuation affect derivatives pricing, if at ...
2
votes
0answers
61 views

How to interpret CME's specification regarding grains options expirations?

Looking at the contract specifications for Soybean Meal and Soybean Oil (same for Corn, Wheat, and other major stuff I checked) serial options on CME I see the following expiration rule: the last ...
2
votes
0answers
160 views

Correlation between idiosyncratic residuals and forward returns

The classic mean-reversion strategy is to calculate an "expected return" (alpha) by computing the raw return for each security and then remove the part which you think is market driven. Statistically ...
2
votes
0answers
141 views

How to reproject rates risk on a subset of tenors

Is there a standard method (statistical or model based) to reproject rates risk obtained on a full set of tenors onto a smaller subset of tenors ? Let's imagine that I got a delta in the following ...
2
votes
0answers
118 views

Best method for determining the market value of a stock before it is issued

I am attempting to determine the hypothetical market value of a stock for a company emerging from bankruptcy as of a date prior to actual the issuance of the stock. For example, let's say the formerly ...
2
votes
0answers
185 views

How to determine risk-free rate of Ecuador?

I have a question in determining the risk-free rate of Ecuador. For developed countries like United States and Great Britain, the risk-free rate can be obtained in financial database such as Reuter or ...
2
votes
0answers
53 views

Recreate Positions after downtime. Suggestions requested

We are trying to be able to get back to the Position state when our software goes down unplanned during the day. So far it seems we can get all our bought and sold quantity based on execution log we ...
2
votes
0answers
189 views

Potential pitfalls in the use of correlation

Background: The red line is an index, which goes from 0 to 100, measuring uncertainty in the markets. The dark blue line is a price index, which has a lower bound at 0, and virtually no upper bound. ...
2
votes
0answers
121 views

Can I trade the volume of a security or index?

Is it possible to trade a derivative product priced on the volume traded of some underlying security or index? Does such a derivative exist on any exchange traded markets? Or anywhere?
2
votes
0answers
222 views

How to properly take averages to reduce data in regression/panel data analysis

I'm trying to do a regression on my panel data. Say I have T=3500 days of data and N=125 firms. Since Matlab get's major memory issues (which I try to prevent by the usual solutions as seen on the ...
2
votes
0answers
242 views

What is the market impact of OTC trading ETFs?

I read an interesting statement here: "If an ETF’s market price tracks its NAV well, it is likely to have a small market impact. On the other hand, if the market price is more volatile than ...
2
votes
0answers
297 views

Obtaining the default probability and recovery rate for each credit rating?

I have the following questions for obtaining the credit rating: Given that I have cumulative default probability of each credit rating from Global Corporate Average Cumulative Default Rates ...
2
votes
0answers
352 views

Pricing options and bid-ask spread

Consider a non-liquid option market with a wide bid-ask spreads across all strikes. Spot: \$52 A snapshot of the \$50 strike shows: ...
2
votes
0answers
61 views

Calculating the error of a Trinomial Model

I've been trying to find a formula to obtain the maximum relative error a trinomial model with n timesteps will incur given all other inputs as compared to the standard BSM model. I'm concerned mostly ...
2
votes
0answers
139 views

Pre-Trade Slippage Costs For Option Spread Execution

Is there a quant model that can help estimate how much slippage one would have to give up in order to get an "option spread" (vertical, butterflies, etc.) order executed? What factors should one look ...
2
votes
0answers
175 views

CVA DVA and Bilateral adjustment

I've already computed the CVA\DVA and now I would like to compute the bilateral adjustment. Does anyone know the relationship between the CVA\DVA with the bilateral adjustment? I mean a paper, ...
2
votes
0answers
175 views

Portfolio optimization with absolute position constraints

I'm looking to optimize a portfolio maximizing expected return for a particular risk budget, but with absolute constraints on the individual instrument positions. I've been experimenting with QP, ...
2
votes
0answers
197 views

Good criteria to sort state-space $\beta_{t}$ according to Kalman filter output

Let the usual state-space linear model (without constant term for the sake of simplicity): $y_{t}=\beta_{t} X_{t}+\epsilon_{t}$ If we use Gaussian Kalman filter to estimate $\beta_{t}$ we get ...

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