# All Questions

438 views

### Arbitragefree Pricing: Q vs. P

I read that the Fundamental Theorem of Asset Pricing states, that a market is arbitrage-free if and only if there exists an equivalent martingale measure Q, under which the discounted asset price ...
138 views

### How current prices is formulated in markets?

I can't understand how immediate prices are formulated in stock & currency (Forex) markets. I have been informed that every tick means one new deal that closed in current price, but this can't be ...
973 views

### Do hedge fund trading desks use portfolio optimization?

I tend to think that hedge funds that actively trade (and most of the ones I have seen trade very actively), don't use optimization methods like MVO or ...
63 views

### European Option Technical Exercise

I like to ask a practical question regarding the exercise of European Options: As we know, one may exercise a European option only at maturity $T$. But for example, if the option can be exercised ...
797 views

### Pricing an interest rate swap using Eurodollar futures

I see this posted but no answer given. I think it would be a good idea if we have a question on here to illustrate an example of how to price an interest rate swap. So far, I understand that that for ...
2k views

### Quantitative Math required for Market-making?

I understand there is an awful lot of Quantitative Math required for statistical arbitrage/algorithmic trading. However, would someone "in the know" be able to tell me whether there is less ...
404 views

### forward vs spot simply-compounded spot interest rate

Question about forward vs spot simply-compounded spot interest rate.Some definitions $P(a,b)$ a zero coupond price at time $a$ and maturity $b$ $L(a,b)$ simply compounded spot interest rate set at ...
2k views

### Bloomberg Zero Coupon Rates

As some of your may know from my other posts, I am working on a Dynamic Nelson Siegel (DNS) based relative value trading model. On simulated data (which satisfies all the assumptions) of the DNS it ...
102 views

### OIS discounting pre and post crises

I have a Dynamic Nelson Siegel (DNS) based rv model. I want to know if I can use pre and post-crises curves interchangeably in my calibration and out of sample testing. I.e. those without OIS ...
669 views

### What Is A Good Success Rate Using Machine Learning For A Beginner?

I know this question will be quickly destroyed and my account summarily banned, but I just have to ask: For a trader using machine-learning algorithms (SVMs, ANNs, GAs, Decision Trees) for ...
103 views

### is there an accepted method for quantifying risk of inaccuracy of nascent trm systems?

Have a somewhat meta question here. I am part of a trading risk management implementation project. I also manage day to day risk reporting to management and the trading desks. Our implementation was ...
84 views

### Infinite autocorrelation - Unit root?

I have a time series of gold prices, on which I want to build an ARIMA model. The series is autocorrelated and if I can difference as often as I want, it always is. First: data: d1gold Dickey-Fuller ...
363 views

### Why can sometimes stock prices rise when interest rates rise?

Basic macroeconomics theory states that stock prices are inversely correlated with interest rates, i.e., when interest rates rise, borrowing is more costly, and thus companies with huge debt would be ...
177 views

### questions on VAR manipulation

The book of Financial Risk forecasting by Danielsson gives the following example about VAR manipulation. I have two questions: 1) If $0> VAR_1 > VAR_0$ , why the following figure plots it as ...
67 views

### Weighting several returns over different time frames

I have a set of annualized returns over 4 time periods: 10yr, 5yr, 3yr and 1yr. Is there a way to weight each return to have a "more representative" return?
158 views

### Solving the Jamshidian Zhu (1997) PCA short rate model

This is my first time posting a question. I have very limited experience in the field of stochastic calculus and interest rate modelling. I have been tasked with implementing the short rate model ...
160 views

### Arbitrage Strategy Proof in Bjork

In Tomas Bjork's Arbitrage Theory in Continuous Time (or here), $\exists$ this proposition Proposition 2.9 Suppose that a claim X is reachable with replicating portfolio h. Then any price at t=0 of ...
572 views

### Do quants need to know Accounting?

Do quants need to know Accounting? In my school's undergrad Quant program, we had Financial Accounting and Managerial Accounting, which were listed as prerequisites for our undergrad Finance ...
169 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 ...
123 views

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 ... 1answer 1k views ### Hedging a Long Equity Swap by Shorting the Stock Suppose that I enter an Equity Swap, such that I pay a floating rate and I receive the equity return. The payment is every one year for both the rate and the return, and the swap expires in one year. ... 1answer 175 views ### Black–Karasinski - Market Price of Risk In the past I have calibrated simple short rate models to the term structure by using maximum likelihood to get the parameters of the Vasicek/CIR sde, and then use the ZCB formula and the current ... 1answer 83 views ### how to calculate avarage variance and avarage covariance I would like to figure out how to calculate av.variance and av.cov. I know how to calculate portfolio variance( for large ... 3answers 2k views ### Why is Value at Risk non-negative? When reading the book of Financial Risk Forecasting, I saw the following example. I am not very clear about two points marked with yellow and green respectively. ... 0answers 168 views ### American Swaption Heding with Malliavin Calculus Hedging American Swaption Hello, I priced an American swaption using Black model with swap rates diffusion to find the european (call) price at t. $$C_t = (\delta \sum_{j=n+1}^{M+1} ... 1answer 2k views ### Pricing a FixedRateBond in Quantlib: yield vs TermStructure I am trying to price a simple U.S. treasury in QuantLib, using two methods. The first method calls FixedRatebond.dirtyPrice(...), passing in a YTM and other parameters. The second method involves ... 1answer 800 views ### Risk-neutral pricing in incomplete markets I know that in order to use the risk-neutral valuation principle, that is, pricing options as their payoff function under a risk neutral measure, one has to have a complete market. But in the ... 1answer 250 views ### Swaptions vol trading lognormally What does this mean: "Front-end vols have been trading lognormally while longer tails have traded normally." I read this in a research report, in the context of ... 1answer 43 views ### How do derivatives affect capital structures? Yesterday, I was at a lecture where the speaker said that the impact of derivatives was often to make senior debt, in effect, subordinated debt (in terms of priority, recovery rates, etc.)? How do ... 3answers 114 views ### How does US banks ensure that other country's banks aren't counterfeiting USD? I have had this question for a long time. For example, if I wire 50M USD from China to the US, does the Chinese bank physically deliver 50M USD cash to the US bank? or is it just changing a number in ... 2answers 660 views ### Beta of FTSE100 stocks against benchmark index FTSE100 first post so if I write something silly don't hold it against me. I calculated beta for almost all the stocks that compose the FTSE100. All have beta < 1. This, as far as I understand it, means ... 3answers 690 views ### Deriving Interest Rates I am trying to teach myself about interest rate swaps, how they are priced, etc... Easy enough - just comparing cash flows of fixed and floating rate bonds. However, what I'm struggling with is how ... 2answers 123 views ### Is the purchase of a stock publicly accessible? If an investor bought a stock, could another private party access that information anywhere? Does the SEC/exchange itself create a real time/ historical record of who holds what stocks, and is that ... 3answers 384 views ### Platform for Quantitative equity portfolio What are the most popular platforms used for quantitative equity portfolio management/research? I've only used Barra so far for their factor models. Is there any specific feature or model you think ... 1answer 98 views ### What does 2 Year Annualized mean compared to 1 Year Annualized I am looking at a company's financial report and there is a table in it that lists returns over different annualized periods. It ranges from 1 year to 20 years. Would a 2 year return in this table be ... 1answer 405 views ### Electricity market : how to design an optimal hedging strategy using spot and futures markets for an industrial consumer? Here is the problem : we should adopt the point of view of an industrial company which purchases electricity as an input in its production line and which wants to achieve the following two goals : ... 1answer 44 views ### What different techniques exist for modeling exotics near payoff discontinuities in Finite Difference method? If you are modeling an exotic, like a binary or a barrier, and hedging it with vanillas that have strikes quite close to the exotic's strike, then a large asset step size, for example, \delta S = ... 1answer 3k views ### robust open source Kalman filter library in C++ I would like to know if anyone has experience with a good open source kalman filter implementation in C++ that I could use. I require an implementation that supports computation of likelihood similar ... 2answers 165 views ### Is stock price priced in the uncertainty? Consider a one step binomial tree model for stock price. The classical setup is as below: At time t=0, the stock price is S_0. At time t=1, the stock has probability p to jump up to price ... 2answers 169 views ### Understanding the conditioning in a GARCH process In a GARCH model like the following$$y_t=\sigma_tz_t,\\ \sigma_t^2=\omega(1-\alpha-\beta)+\alpha y_{t-1}^2+\beta \sigma_{t-1}^2$$where$z_t$is assumed to be iidN(0,1), we say that conditional on ... 1answer 52 views ### Which more topic should be covered in my undergraduate program? [closed] Below is the topics covered in my undergraduate economics program. I want to know which course should I take to get a full overview of topics in finance today. Econometrics Micro, Macro Economics ... 3answers 335 views ### Why does [dz(t)]^2 converge to dt over infinitesimally short time periods? I have some trouble understanding a chapter in George Pennacchi textbook "Asset Pricing". Here the author shows that the square of a Wiener Process$[dz(t)]^2$converges to$dt$for infinitesimally ... 1answer 148 views ### Intuitive understanding of Black-Scholes pricing The Black-Scholes formula entails market completeness, so the price of an option is only the cost associated with dynamically hedging the option. Where does this cost come from? I don't see how ... 3answers 586 views ### What is the tau parameter in the Black-Litterman model? Could someone please provide me with a clear and concise definition of the$\tau$parameter in the Black-Litterman model? It seems one is rather hard to come by. I understand it to be the 'weight on ... 1answer 119 views ### investors hold efficient portfolios because generally they are risk averse I'm trying to find a concept on this question,in my understanding investors differ on risk preference,the question said investors hold efficient portfolios because they are generally risk averse? ... 2answers 148 views ### Basis Risk for Futures/Options I am just reading about basis risk. It is being described as risk of the price of the hedging instrument not fluctuating the same as the instrument itself. I was just wondering, if we bought a ... 1answer 219 views ### Short-term directional trading Did value of ratio between informed and uninformed traders at market, making difference to profitability of short-term directional trading on that market? My guess is yes and better play short-term ... 2answers 618 views ### The option values are different from two r package - foptions,rquantlib The results are very different.I know the code from quantlib and the result of quantlib seem right(close to market price). Is there anyone know why the value from fOptions is so large or fOptions used ... 1answer 458 views ### Controling ex-post volatility by ex-ante limits In the context of mutual funds the KID directive forces us to calculate 5 year ex-post volatility of a (market) fund (weekly returns). Thus each week we look back in the past and calculate volatility ... 2answers 262 views ### Intuition behind interest rate models I am modelling the 3M yield of US Treasuries using an ARMA/ GARCH approach. Most interest rate models (e.g. Vasicek) describe the process as follows:$r_{t}-r_{t-1} = some ARMA+ \epsilon_t \$ ...

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