# All Questions

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### Is the risk-free rate really limited by inflation?

In all the classic texts on equities derivatives, there is an assumption of the risk-free rate r. We can immediately dismiss the concept of a fixed rate; all interest rates are variable (and ...
3k views

### Earnings and valuation data sources online

Are there any free/cheap sources for historical data on company earnings and valuations? I can get historical price data from Google and Yahoo, and it looks like I can get about five years of ...
345 views

### Appropriate measure of Volatility for economic returns from an asset?

I am doing research on uncertainty analysis and risk assessment for oil field development. For doing economic forecast and valuation I use Real Options theory, which is almost similar to theory used ...
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### Implementing a Fast Fourier Transform for Option Pricing

So, I'm in need of some tips regarding a small project I'm doing. My goal is an implementation of a Fast Fourier Transform algorithm (FFT) which can be applied to the pricing of options. First ...
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### local price return and volume relationship

I wanted to see how the stock price and volume relationship is locally. So I tried ranking both the daily return (at day t) and volume (at day t) base on a 30 day rolling window with historical daily ...
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### Links to the risk model methodologies of the major providers?

There is quite a bit of art in constructing an equity risk model. This paper summarizes some of the key decisions: choice of factors, horizon matching, cross-sectional vs. time-series method, and ...
869 views

### What is the Sugihara Trading System?

I recently heard the term Sugihara Trading System. I guess it might be some trading strategy or a special model to predict trends in market data, but I couldn't find out anything about it. Does anyone ...
1k views

### Is QuantLib more trouble than it's worth?

I'm just starting to work with QuantLib and wonder if I'm going down a very wrong path. I'm working on a site that presents the visitor with a table of streamed real-time options data, including ...
326 views

### Currency Hedged ETFs

At work we were talking about currency hedging our equity index exposures but I am struggling to understand how this happens in a typical iShares ETF. If we take the Japan ETF IJPN then we see this ...
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### Breaking Transactions Down into Derivatives

We were talking about merger arb in a class I had last night, and when we got do deal construction it was mentioned that the different ways can be viewed as different options. For instance a fixed ...
186 views

### St Petersburg lottery pricing & short investing horizons

I am a statistician (no solid background in finance). Please forward me to a book \ chapter \ paper to resolve the following general question. Suppose we have a stock with the following monthly return ...
702 views

### How are Expected Shortfall and Variance related?

I would like to know how Expected Shortfall $SF_\alpha$ and variance $\sigma^2$ are related. If I follow what Aaron Brown answered in this post, when the underlying distribution is Normal with ...
313 views

### What drives changes in implied volatility on ETFs/ETNs?

I thought implied volatility, as well as the VIX, primarily increase due to increases in the underlying asset's volatility, as well as the options themselves being bid up because more people were ...
736 views

### Models for measuring insurance risk exposure

I've recently begun working as a quant for a large bank, and one of my first tasks will be to improve the model determining the risk exposure of their insurance portfolio. The portfolio is fairly ...
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2k views

### How does pair trading work?

Explain pair trading to a layman. What is it, why would you want to do it, and what are the risks? Provide a real life example.
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### What kind of specialized hardware is used in trading?

What kind of computer hardware, in additional to the 'conventional' fare, is actually used in trading? And what languages is it typically programmed in? I'm interested in ASICs, FPGAs, that sort of ...
1k views

### How do I estimate the joint probability of stock B moving, if stock A moves?

I have two stocks, A and B, that are correlated in some way. If I know (hypothetically) that stock A has a 60% chance of rising tomorrow, and I know the joint probability between stocks A and B, how ...
1k views

### Is Visual Basic a fast enough for millisecond orders

I have an API that for an order routing platform that is in visual basic. The maximum frequency or orders to exchanges will be milliseconds, where the underlying systems are expected to be able to ...
1k views

### What functional form describes the implied volatility curve?

It is often convenient to parametrize the implied volatility curve to allow easy interpolation of volatility for any strike or maturity. What functional form describes the implied volatility curve for ...
393 views

### Seeking Historical Non-Finance Datapoints for Backtesting

I'm working on some financial analysis code which I'd like to test against a historical dataseries to analyze the correlations to my algorithm to some non-finance related data. Ideally, I'd like to ...
2k views

### Hidden Markov Model & Its Application

I have started reading about HMM it gives an intuitive idea about what HMM is all about. I am looking out for example where its applied to Equity model using R / Excel. The material which I read so ...
3k views

### Why do we use GARCH(1,1) to predict volatility?

What makes GARCH(1,1) so prevalent in modeling especially in academia? What does this model has that is significantly better than the others?
2k views

### Multilayer Perceptron (Neural Network) for Time Series Prediction

I have it in mind to build a Multilayer Perceptron for predicting financial time series. I understand the algorithm concepts (linear combiner, activation function, etc). But while trying to build the ...
2k views

### Why is the first principal component a proxy for the market portfolio, and what other proxies exist?

Let's say that I have a universe of stocks from a certain sector. I want to compute the market portfolio of this sector. Beta is the covariance between each stock and the market. But how do you ...
2k views

### How to perform risk factor calculation?

I am studying Arbitrage Pricing Theory (APT) and I have a question about calculating factor exposures. Assume: $$r = \beta_1r_1 + \beta_2r_2 + ... + \beta_kr_k + r_e$$ ...
634 views

### Why shrink the covariance matrix?

I'm trying to understand why it's useful to shrink the covariance matrix for portfolio construction or in fact general. Think I missing something. I know if you have 5,000 stocks it's a lot of ...
622 views

### Reference on Markov chain Monte Carlo method for option pricing?

I have to implement option pricing in c++ using Markov chain Monte Carlo. Is there some paper which describes this in detail so that I can learn from there and implement?
698 views

### What are the risk factors in analysing strategies?

What do you think of strategies displayed on timelyportfolio.blogspot.com? I really like the fact that there is some code to reproduce the strategies, but they seem very elementary because he does ...
547 views

### What is Quantization?

I have asked myself many times about Quantization Numerical Methods, is anyone here familiar with the subject and could give a reasonable insight of what Quantization concepts are about, and what are ...
2k views

### Sources of Machine Readable News

I'm starting on a project that involves correlating and forecasting Forex time series to news releases. I'm aware of sources such as Thomson Reuter's machine readable news and Dow Jone's Newswire ...
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### Is this a common variation of sharpe ratio?

As an aside on his answer on another question Freddy said: Sharpe ratio is an often cited metric, though I do not like it too much because you are penalized for out-sized positive returns while ...