0
votes
3answers
421 views

How to create a model or formula for evaluating trade opportunities

I want to build a formula to produce a score for a potential trade based on 4 variables, time, return, liquidity of security, and probability of failure. For a set of potential trades I first ...
3
votes
2answers
86 views

Risk Neutral Pricing Necessary Condition

Suppose that I have an option on a single stock expiring at time $T$ and I replicate the payoff of this derivative by investing in the stock market and the money market. So this condition reads $$X(T) ...
2
votes
2answers
591 views

List of dates at which the NYSE was closed from 2005 to 2014?

I'm doing research on historical price movements on the New York Stock Exchange. Because the NYSE is closed on weekends, on holidays, and sometimes because of special events, special care needs to be ...
3
votes
1answer
374 views

Portfolio Optimization - n risky assets

I'm currently implementing a CAPM model in Excel: A portfolio of n risky assets when n=6 (in this case) A riskless borrowing rate of 8% and riskless lending rate of 3% I'm given the expected return ...
1
vote
1answer
166 views

How to develop your own interest rate model?

How can you develop your own interest rate model? What must be take cautiously before making one? Also what is the regulation that one mustfollow? Also what is some common properties that models ...
2
votes
2answers
176 views

What is the reasoning to derive this financial model called the Vasicek Model?

The model specifies that the instantaneous interest rate follows the stochastic differential equation $$\mathrm{d}r_t = a(b-r_t)\: \mathrm{d}t + \sigma \: \mathrm{d}W_t$$ where $W_{t}$ is a Wiener ...
2
votes
2answers
280 views

How to classify stocks by their volatility?

I would like to hear other possible ways of classifying Stocks by the Volatility of their returns. Assuming that I want to characterize each stock as Low, Medium or High Volatility Stock and assuming ...
2
votes
1answer
144 views

Methods for “prompt month equivalent” exposure in commodities forwards/futures markets

It is common in commodities markets to hold many positions, both long and short, across a range of contract months beginning in the prompt month (today, September) to five or more years out. In ...
4
votes
3answers
123 views

Modelling currency exchange rates timeseries data across re-denomation dates

I am working with data for an exotic currency, that has been re-denominated a couple of times during the twenty years of data that I have. What is the best way of 'normalising' the data, so that I ...
1
vote
1answer
446 views

Cholesky Decomposition on Correlation Matrix for Correlated Asset Paths

I found a matlab example for modelling correlated asset paths: http://www.goddardconsulting.ca/matlab-monte-carlo-assetpaths-corr.html In this model the author uses the matlab code chol() in order to ...
3
votes
2answers
149 views

Approximation of different volatilities

Suppose I model the forward swap rate lognormal $$dS_t = \sigma_{ln}S_tdW_t$$ On the other hand we could model it simply by a normal assumption: $$dS_t = \sigma_{n}dW_t$$ I would like to know if ...
1
vote
0answers
38 views

Doubt on risk cost criterion

I want to minimize some kind of risk sensitive cost. But, I am confused what cost criterion should I use. I am aware of only expected exponential utility. I want to know what are the other such ...
2
votes
1answer
163 views

hedging with a 3 month fx forward every month

I think this is a bit odd question. Let us say I want to hedge my fx exposure every month but using 3 month forwards . How can I do that ? Is it not easy just to use 1 month forwards ? I recalculate ...
1
vote
1answer
1k views

Probability of stock closing over a certain price

A stock has beta of 2.0 and stock specific daily volatility of 0.02. Suppose that yesterday's closing price was 100 and today the market goes up by 1%. What's the probability of today's closing price ...
3
votes
2answers
291 views

Valuation of barrier options in Jump diffusion model

I am trying to evaluate the value of a Barrier option using Monte carlo method. The stock follows a jump diffusion model. I am using the method described in Metwally and Atiya. The authors describe ...
1
vote
1answer
110 views

ADR vs Foriegn Stock Price Arbitraguers

So I am sure you all know about the whole Argentina default that has been in the papers lately, no need to delve into it. This so called "technical" default has lead some interesting investment ...
1
vote
1answer
88 views

How can theta be so large on this option?

The AAPL Sep 95 put currently has a theta of -.21. The put midpoint is .84. 84/21 = 4 days. However, the put has nearly a month before expiration, at which time it will be zero. Not 4 days from ...
5
votes
3answers
493 views

multiperiod optimization using R

I'm interested in multistage optimization problems. Are there any good R packages around to solve such problems over time? I'm not at all an expert in it, so maybe someone knows a good paper / lecture ...
-2
votes
0answers
87 views

Stock Price Evolution Equation Clarifications [closed]

What is the dimension of Δt? Is it second [s]? What are the expected return and the expected volatility? How can I calculate them for any given stock? Should I use the return and volatility values for ...
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, ...
1
vote
1answer
140 views

Explain drop in Correlation between two time series in consecutive periods

I have a time series for a security list with 2 parameters calculated for each time period. For example, for a stock XYZ, I have Param1 and Param2 calculated over various time periods stacked against ...
1
vote
0answers
107 views

CVA formula proof

I'm struggling to prove the CVA formula in this paper. Equation (3) is the result of computing the expectation of formula (1). Could you please show me how to prove that?
2
votes
1answer
159 views

Volatility of Futures

Apparently: Under a constant interest rate, the futures price is given by a deterministic time function times the asset price (I think I understand this). This means that the volatility of the ...
1
vote
2answers
212 views

M&A hedging an equity portfolio against an index

Quick Note This question was already posted under the userID user8170. Reason being I could not access my account. Now I am able to login to my account I am reposting the question here and will ...
1
vote
0answers
231 views

one-step-ahead Stochastic Volatility for 5-minute VWAP prices

I'm trying to run an SV model against prices of Euro/USD. For those not familiar with SV, its a volatility model in which each point gets its own volatility parameter $h_t$ with 3 main parameters that ...
2
votes
0answers
59 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 ...
1
vote
2answers
332 views

Impact of NZD mid-day EST Roll forward

Was taking a look at an NZD spot deal that was traded on a Friday for value the following Tuesday (t+2). Somehow this trade became classified as a forward by our back office systems (dealer says they ...
2
votes
1answer
692 views

Incoherence in Bloomberg Data in Swap Curve Builder (ICSV)

When working on calibration for LMM model, we need to have Initial Libor quotes and Swaptions Black vol quotes on the market data. We have data provided by Bloomberg. However, before performing the ...
3
votes
0answers
37 views

For an affine process, how do we know the second order term is positive definite?

A regular affine process is defined to have the generator $Af(x) = \sum_{k,l=1}^d(a_{kl}+\langle a_{I,kl},y\rangle)\frac{\partial^2f(x)}{\partial x_k\partial x_l}+\langle b+\beta x,\nabla f(x)\rangle ...
4
votes
1answer
300 views

factor models and using cross section regression

I have been doing some reading on factor models. In the literature it mentions that when creating a portfolio that maximises particular attributes it may lead to unwanted bias to other factors. I ...
4
votes
1answer
92 views

Discounted risky asset stochastic process problem

$S_t$ is the random variable representing the risky asset price at time $t$. M_t is the riskless asset. They are governed by the equations $\frac{dS_t}{dt}=\mu dt + \sigma dZ_t$ and $dM_t = rM_t ...
4
votes
0answers
311 views

Mid-Point calculation with execution probability

Referring Cao, Hansch, and Wang (2004) "The Informational Content of an Open Limit Order Book" $$ \mbox{WP}^{n_1 - n_2} = \frac{\sum_{j=n_1}^{n_2} (Q_j^d P_j^d + Q_j^s P_j^s)}{(Q_j^d + Q_j^s)} $$ ...
2
votes
1answer
99 views

Calculating short/long order percentages?

I have a feed in real time that lists the ask and bid orders. Each order consists of a value and a quantity. I want to calculate the percentage of short orders from the total orders in terms of ...
2
votes
1answer
741 views

How does Volatility Pairs Trading work?

I've read some material related to pairs trading for equities and I understand the process of finding non-stationary pairs price series that can be cointegrated to form a stationary series. The basic ...
1
vote
1answer
155 views

Can Standardized unexpected earnings be considered a Z-score

According to this wikipedia: http://en.wikipedia.org/wiki/Earnings_surprise, the SUE score is a "standardized" difference between reported earnings and expected earnings. Therefore, can the SUE score ...
2
votes
1answer
831 views

Risk-Free Rate determinant in CAPM

I have trouble understanding what type of maturity to use when calculating CAPM. My professor uses the 3-Month risk-free rate to ...
3
votes
1answer
1k views

How to Calculate Confidence Intervals for Moving Averages Given Nonindependence?

I've plotted 30-year moving averages across time for a couple of portfolios, and I was wondering how to calculate a 95% CI for the these moving average data (i.e., across all moving average data ...
1
vote
0answers
59 views

How to value a portfolio of non-mature consumer loans?

I'm looking for the best way to value a portfolio of consumer loans that have NOT reached maturity and for which I do observe the payment/default history to date? I'm working with a large database of ...
3
votes
1answer
336 views

Stress Testing Methods

I'm working on the following task: Given quarterly data: a time series representing the 1-year realized (10 years of data) rates of default on a portfolio of mortgages a slew of ...
2
votes
1answer
121 views

How would you price this kind of derivative?

I am somewhat familiar with options but am wondering how to price calls/puts on this one: European exercise "Jumps" in underlying may occur Takes physical delivery upon exercise (is this even ...
2
votes
2answers
490 views

Black-Scholes Equation - Riskless portfolio derivation

The following is a summary of the derivation of the Black-Scholes equation as given on wikipedia (http://en.wikipedia.org/wiki/Black-Scholes_equation#Derivation) - I have a question regarding the ...
3
votes
1answer
1k views

Cost of Carry Bear Flattener

I was reading a report last week that “the carry on a 2s5s gilt curve flattener is negative to the tune of 10bp over 6 months” and I realised I have little understanding of this concept and ...
2
votes
1answer
846 views

How to fully replicate ADX + DI Indicators in Excel? [closed]

For black box testing, I was hoping that I could replicate the ADX + DI+ and DI- indicators that are provided in trading platforms such as ThinkOrSwim, ScottradeElite etc. However, I noticed that ...
1
vote
1answer
2k views

Integrating R with Bloomberg

In the past, I have used the package RBloomberg to directly pull bloomberg data into R. I've also seen it go by the names Rbbg or R[Name Redacted]. It seems to me, however, that this package no longer ...
0
votes
1answer
172 views

Is there a trustworthy ranking of quantitative finance degrees?

I'm interested to know if there is a trustworthy ranking of master's degree in quantitative finance. I'm specifically interested in some recruiter's perspective or experience, if available. I ask ...
4
votes
1answer
355 views

Why maximize expected growth rate?

It seems to me that the optimality of the Kelly Criterion relies on the assumption that it is in an investor's best interest to maximize his portfolio's expected growth rate. Why would he care what ...
2
votes
1answer
498 views

Is Reuters Instrument Code (RIC) case-sensitive?

Someone in my organization claims that RIC codes are case-sensitive. So for example: SPXi201420000.U does not refer to the same instrument as ...
1
vote
0answers
390 views

Autoregressive distributed lag models ADL(p,q) howto in preferably matlab (stata/R/python/C# etc)

Could anyone provide me the details of how to determine the lag order of the distributed lags for an ADL(p,q) model in Matlab or another statistical package (and very much preferably in combination ...
7
votes
1answer
868 views

Estimate rolling stochastic volatility forecast using stochvol in R

I want to use the R package stochvol to fit a SV model to a DAX training set and use the output to estimate a rolling one-step-ahead forecast: ...
1
vote
0answers
78 views

Understanding Price Elasticities in Discrete Choice Models (Derivative)

I'am in the midst of a paper on mutual fund product differentiation by Li and Qiu. Here, the authors model the utility an investor derives from investing in a mutual fund using a Discrete Choice Model ...

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