8
votes
1answer
235 views
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 ...
8
votes
1answer
826 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 ...
8
votes
1answer
530 views
Forward Adjusting Stock Prices?
How should one correctly forward adjust historical prices given a time series of Open, High, Low, Close, Return?
Suppose that the data series is given below ('1' is the oldest interval; '5' is the ...
8
votes
1answer
228 views
reasonable asymptotic elasticity in utility maximization (paper by Kramkov / Schachermayer)
I'm working through this paper by Kramkov and Schachermayer. I have a question about the proof of Lemma 3.6.
$\mathbf{Question}$ Why is the inequality $(3.13)$ true, i.e.
$$\lim\sup_n ...
8
votes
2answers
154 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 ...
8
votes
1answer
386 views
Meta-view of different time-series similarity measures?
While I spend most of my StackExchange time on MathematicaSE, I'm in the business and follow the questions and answers on this site with great interest.
Recently questions like the following (and ...
8
votes
3answers
209 views
Are there any standard techniques for adding realistic synthetic microstructure noise to a price series?
This may seem like a strange question, but for my particular application we need to actually add synthetic microstructure noise to real time charts. The signal should still be representative of the ...
8
votes
1answer
275 views
What is a commonly accepted econometric model for volume?
What is the gold standard econometric model for volume? For example, a common model for price is the autoregressive (AR) model with GARCH(1,1) innovations. Do you know of any good survey articles ...
8
votes
1answer
35 views
What are useful indexes for rapid evaluation of country economic risk?
The World Economic Forum Global Competitiveness Report offers a comprehensive view of individual country risk/reward. There has been an explosion of these types of indexes over the past few years.
...
8
votes
1answer
483 views
Kalman Filter Vs Hough Transform
These questions are in regards to the Kalman filter and the Hough Transform.
What are the Pros and Cons of using each method?
In what situations is it better to prefer one over the other?
8
votes
1answer
273 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 ...
8
votes
1answer
271 views
Option Portfolio Risk - Volatility/Skew - practical implementation
I'm trying to improve my methods for calculating real-time US Equity option portfolio risk.
My main problem is volatility "stability" across all strikes in an option series.
The current ...
8
votes
1answer
1k views
Which approach to estimating fundamental factor models is better, cross-sectional (unobservable) factors or time-series (observable) factors?
There are many approaches to estimating fundamental factor equity models. I would like to focus on two traditional methods:
The time-series regression approach of Fama and French. Factors are ...
8
votes
1answer
744 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 ...
8
votes
1answer
289 views
What are the main differences in Jump Volatility and Local Volatility
Is a JV model simply Local Vol + Jump Diffusion?
If so, it seems logical that an existing JV model be able to be used for valuation of both Vanilla and Exotic options. Is this true? Does a Local ...
8
votes
1answer
341 views
How to select/construct benchmarks for black-box trading strategies?
When faced with a black box trading strategy with extensive historical data available, how would one select/construct a representative benchmark?
As a trivial example, when a strategy historically ...
8
votes
1answer
189 views
Hedging duality
We consider a financial market over the time interval $[0,T]$ where a risky asset is a semimartingale $S$. By $\mathbb{P}$ we denote the set of all equivalent local martingale measures (ELMM). We ...
8
votes
1answer
250 views
Topological methods in finance
Recently a promising start-up (Ayasdi) has made headlines. They are a spin-off of the Applied and Computational Algebraic Topology group of Stanford University (ComTop). What they basically do is ...
8
votes
3answers
419 views
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 ...
8
votes
1answer
294 views
Where can I find data on the interbank lending market?
Where can I find disaggregated interbank lending data (i.e. bank A lends to bank B x money at y rate)? I could only find data on interest rates.
I would accept LIBOR market data as well as any ...
8
votes
2answers
996 views
How to vet an intraday strategy
I am working on an intraday strategy using 5/10 minute bars. I am getting a decent return and sharpe on the strategy. But on close examination I see that I am making about 1 cent per trade (I haven't ...
8
votes
1answer
392 views
Hedging long municipal bond portfolio using BMA/SIFMA
A question from one of my members.
Anyone have experience hedging a long municipal bond portfolio using BMA / SIFMA swaps? Anything you can share regarding sizing and structuring the swap and ...
8
votes
1answer
280 views
Musiela parameterization
I have a question regarding the proof of the Musiela parametrization for the dynamics of the forward rate curve. If $T$ is the maturity, $\tau=T-t$ is the time to maturity, and $dF(t,T)$ defines the ...
8
votes
2answers
756 views
What are some examples of Compound Poisson processes in insurance?
I'm writing the Bachelor thesis but I need some information. I need to find some practical examples and applications of the Compound Poisson Process in insurance. Does anyone have any good examples?
8
votes
1answer
178 views
How should FX options be priced when a currency is artificially capped?
The question is inspired by yesterday's (06/09/11) historic announcement by the Swiss National Bank that it would impose a ceiling on the franc of 1.20 against the euro.
I would like to know if there ...
8
votes
1answer
324 views
What are important model and assumption-free no-arbitrage conditions in options trading?
In the paper "Why We Have Never Used the Black-Scholes-Merton Option Pricing Formula" (Espen Gaarder Haug, Nassim Nicholas Taleb) a couple of model-free arbitrage conditions are mentioned which limits ...
8
votes
2answers
479 views
Why do low standard deviation stocks tend to have superior future returns?
I've recently stumbled on something that really surprised me. These papers (1, 2) find that past standard deviation of returns is inversely related to future returns. That is, portfolio of low ...
8
votes
1answer
560 views
Quantitative before/after or financial engineering studies of a bid or ask tax?
Has anyone in the quantitative finance or financial engineering community studied the effects of a bid or ask tax with actual or simulated data?
If so, what were the quantitative results or ...
8
votes
2answers
462 views
Liquidity estimators: VWAP and IS
I am looking for some info on how to estimate liquidity (intraday). I have read some researches and created intraday measurements of liquidity on time yet not on price. What I mean by this is that I ...
8
votes
1answer
431 views
What tools and libraries may be used to model limit/stop systematic trading?
A lot of the tools/libraries out there seem to focus on close to close time series analysis. This is all fine but I typically do not trade close to close, I will use limit or stop orders that may or ...
8
votes
2answers
683 views
time series management system
I'm happy how we store a single time series but we somehow lack a system that glues them all together. I'm talking about a few million time series coming from ~50 data vendors and representing maybe ...
8
votes
2answers
476 views
Where can I find a database of ALL ETFs, sorted by age?
I have a portfolio allocation strategy I want to backtest, but I need a large "universe" of ETFs for it to choose from at each time period. I was thinking of starting with a criteria such as "all ...
8
votes
1answer
253 views
Are there any standard MBS coupon stack models?
I need to model MBS coupon stack prices. It would not be difficult to create something from scratch, but I don't want to re-invent the wheel (and explain why I did) if a somewhat standard model ...
8
votes
0answers
182 views
Measuring Behavioral Finance Effects in Fund/Portfolio Manager Analysis
I want to know if there are some standardized measures to evaluate how irrationally human a portfolio manager is. Are there any performance measures or scorings for behavioral finance effects? How ...
7
votes
8answers
1k views
What are some good technical and non-technical books for a math lover to get in to quantitative analysis? [closed]
To get the ball rolling... I will answer this question this evening
For people aware & unaware I think it would be a great way to introduce the group, resources for fundamental knowledge & ...
7
votes
4answers
950 views
Methods for pricing options
I'm looking at doing some research drawing comparisons between various methods of approaching option pricing. I'm aware of the Monte Carlo simulation for option pricing, Black-Scholes, and that ...
7
votes
4answers
1k views
Statistical learning libraries
Is there a general (or specialised) FREE library to solve learning problems such that found in the book "The Elements of statistical Learning". As it is often time consuming to write all the ...
7
votes
4answers
780 views
Library to solve optimization problems
I'm working with C# and I start being bored writing optimization algorithm. Do you know of any free library containing this sort of algorithms.
In particular I'm cutrently working with Semidefit ...
7
votes
5answers
698 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 ...
7
votes
5answers
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 ...
7
votes
5answers
6k views
How to check if a timeseries is stationary?
I'm using KPSS Method to check if the series is stationary, but I would also like to use another test to confirm if the series is stationary or not, what method coudl I use?
7
votes
4answers
943 views
What approaches are there to order handling in automated trading?
I am currently developing a commercial automated trading program in which users can write their own proprietary code and develop strategies, like in NinjaTrader, MetaTrader etc. Right now I am working ...
7
votes
4answers
10k views
What are some examples of non-financial risks and contingency plans?
There are many online sources about common risk factors in investing and trading e.g. market risk, credit risk, interest rate risk. There are various factor models (Fama-French, Carhart) and risk ...
7
votes
2answers
444 views
When to use Monte Carlo simulation over analytical methods for options pricing?
I've been using Monte Carlo simulation (MC) for pricing vanilla options with non-lognormal underlyings returns.
I'm tempted to start using MC as my primary option-valuating technique as I can get ...
7
votes
5answers
658 views
Trading a stock (or other asset) based on Bollinger Bands.
One way investors analyze stocks is on a technical basis. Looking at Bollinger Banks (20 day moving average +- 2 standard deviations) is one of the most popular technical tools. Some stocks trade ...
7
votes
4answers
1k views
How to perform risk factor calculation?
I am studying Arbitrage Pricing Theory (APT) and I have a question about calculating factor exposures.
Assume:
\begin{equation}
r = \beta_1r_1 + \beta_2r_2 + ... + \beta_kr_k + r_e
\end{equation}
...
7
votes
1answer
378 views
What is the optimal strategy when there is an equal chance for gain or loss but the size of the potential gain is larger?
I'm investigating a situation where the chance for gain or loss is the same, but the amount gained is greater than the amount that is lost. For example, the gain would be about 30% of the trade ...
7
votes
4answers
1k views
Real-time & Fast S&P 500 E-Mini Futures (ES) Data
I trade on local exchanges in Europe, but my HFT strategies need S&P 500 e-mini futures data (ES). I don't need to trade ES, but I need real-time data and I want to have it as fast as possible.
...
7
votes
3answers
749 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 ...
7
votes
3answers
412 views
Does random matrix theory (RMT) for returns' correlation matrices apply if there are high correlations?
Steps to replicate:
Take the correlation matrix of a sample of stocks in the SP500, or a set of ETF's that are include some that are highly correlated (0.7 and above).
Problem observed:
I observe ...
