# All Questions

86 views

### Individual/casual investors and the bias towards blue-chip stocks?

There's quite a bit of research (example, [1]) teasing out the fact that home/casual/individual investors prefer stocks with large positive skewness. It surprised me, as I was reading a bunch of these ...
177 views

### Expected length and depth of drawdown

Does anyone know of any model to estimate the distribution of drawdown length and depth assuming a certain portfolio dynamics? The arcsine law seems to suggest that a portfolio can spend a large ...
775 views

### Implied Volatility for Asian option

I am new to the topic of Asian options. Assume I want to price an Asian put (fixed strike, discrete average) in the Black Scholes world. I know implementations to calculate the value but what is the ...
525 views

### Coin Toss System

Coin Toss Runs Calculator The expected number of runs for two consecutive heads or tails is 3. Is there an edge if we place a progressive constant size bet(limited to 3 times)for consecutive ...
602 views

### What makes IRC a market risk?

Since modeling leaves complete freedom we can assume both market and credit risks can enter the picture. However the minimum requirement is (migrations and) defaults simulation, how does this ...
182 views

### Backtesting benchmark / control test design

I am designing a backtesting system to test an algorithm. I'd like to have a benchmark / control test results to compare to the results of a custom algorithm. A limited "set" of stocks is selected ...
167 views

### What are the proper metrics to look at for checking discrepancies in these two time series

I am obtaining bid/ask price and volume market data from two different sources for the same ticker and for the same day and checking to see that at time intervals X they are "roughly the same". The ...
712 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 ...
409 views

### Gradient tree boosting — do input attributes need to be scaled?

For other algorithms (like support vector machines), it is recommended that input attributes are scaled in some way (for example put everything on a [0,1] scale). I have googled extensively and can't ...
2k views

### Conditional or unconditional volatility?

I am reading a paper (reference below) that states "The conditional volatility for each underlying security (or for a market index) can be estimated using the standard deviation of the stock’s ...
389 views

### Volatility models using Rugarch

I have estimated sGARCH, EGARCH and TGARCH, which some for particular models are significant. For others, the alpha remain insignificant using various innovations such as the skewed variants of the ...
187 views

### Creating a doubling and halving position

I want to create a position that either multiplies with $1+u$ (outcome $U$) or $1-d$ (outcome $D$). The probability of $U$ is denoted by $P(U) = \pi$. The initial value of the position is $V_0$. Given ...
177 views

### Looking for analysis of NASDAQ suit?

I may have every particular detail of this wrong, including the exchange, but years ago, maybe as long as 20, there was a successful suit against NASDAQ based on research by academics showing their ...
739 views

### Using alpha to evaluate trading strategy

I have a trading strategy that generates returns $R_{t}$. I want to test the strategy by looking at the alpha: $R_t - R_{f,t} = \alpha + \beta (R_{m,t} - R_{f,t}) + e_t$ I compare my alpha against ...
357 views

### Where can I find exercises on building a project finance spreadsheet?

I'm looking for a set of exercises that teach how to build a project finance spreadsheet. I accept there may be no typical project finance, but there are a lot of principles are shared in common ...
199 views

### Whare are the common Global Asset Allocation indices?

I would like to make a comparison between some multi asset class strategies and some kind of benchmark. In this situation, the classic benchmarks like MSCI World (for Equitites), GSCI (for ...
174 views

### Probability Density of Returns of Bonus Certificates

Could anyone please help me with the following? I need to generate a histogram (resp. probability density) of returns of a bonus-certificate. A bonus-certificate can be replicated by an underlying ...
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 ...
343 views

### Choosing attributes for SVM classification?

Let's assume I am classifying every trading day as a 1 or a 0. Exactly what I am classifying doesn't matter, but for the sake of this question let's say I am predicting direction of price change. So, ...
1k views

### Equity option portfolio greeks with underlying

I'm curious about how to construct the five basic greeks for an equity option portfolio when there are shares of the underlying in the portfolio. For example, a portfolio of 100 call options and 100 ...
136 views

### How is a quanto priced?

How would one price a derivative denominated in EUR that pays in USD?
297 views

### What is Heston's equation?

This paper mentions the elliptic Heston operator: $Av:= -\frac y2(v_{xx}+2\rho\sigma v_{xy} + \sigma^2v_{yy}) - (c_0 - q - \frac y2)v_x + \kappa(\theta -y)v_y + c_0v$. Then boundary value problem ...
300 views

### self-consistent parametric form for equity implied volatility

I recall reading a paper, but can't remember where I found it. In short, there was a parametric form for volatility smile/skew that fit both index and single stock vol slices and had intuitive ...
752 views

### VaR for corporate bonds

I am trying to create a simple risk calculation for the portfolio (ignoring correlations for the moment). I have some corporate bonds with limited daily price changes. Any one have ideas how I can get ...
454 views

### Connections between random walk and heat equation (Material for ~)

I am preparing an undergraduate lecture in quantitative finance and I am looking for material that combines the topics: random walk and heat equation The material should be accessible ...
111 views

### forward- and backward adjusting stockprices

Do you guys know if a paper has been published that discusses forward- and backward adjusted stockprices, and the look ahead bias coming from backward adjusted data?
964 views

### Data feed API that uses REST?

Is there a data feed provider that has a REST (http) API? Preferably real-time and historical, at least for US equities.
4k views

### Can the Hurst exponent be greater than one?

Can the Hurst exponent be greater than one? Does it mean that the time series follows a random walk or that it's not stationary?
313 views

### Alternative liquidity measures

I'm going to write the MSc thesis on flight-to-liquidity phenomenon in stock markets and I'm interested in liquidity measures other than Amihud or bid-ask spread. What are some other popular measures ...
659 views

### Calculating the right portfolio(position size for each leg) in a Long/Short Strategy

For a Long/Short Strategy, I have two stocks with different volatilities. How can I calculate the right position size for each leg? *The pair trading is not coming from co-integration but more as a ...
738 views

### .NET statistical packages recommendation

What open source or commercial .NET statistical package would you guys recommend? I am doing statistical arbitrage in options. The functions I need mainly are regressions, optimizations..etc. It would ...
492 views

### Risk neutral probability in binomial short rate model assumed to be 0.5?

This should be a basic question but I have not been able to find a satisfying explanation. In the simplest binomial model, the risk neutral probability is computed using the up/down magnitude and the ...
586 views

### Construction of “vol of vol”

How do you construct something that lets you buy "vol of vol"? not necessarily for VIX, but any particular stock or index.
1k views

### How to transform process to risk-neutral measure for Monte Carlo option pricing?

I am trying to price an option using the Monte Carlo method, and I have the price process simulations as an inputs. The underlying is a forward contract, so at all times the mean of the simulations is ...
587 views

### Order and position management in (semi-)automated trading system

A simple and lazy approach to implementing an order and position management (OPM) component in a (semi-)automated trading system: leave most OPM to counter party (broker/exchange). Even then funds ...
261 views

### Minimum variance hedge with more than one asset

My portfolio comprises of 3 assets A,B,C that are correlated and the variance-covariance structure is known. At any given point in time, my position in Asset A say is given to me. I need to ...
1k views

### Does Interactive Brokers (IB) have a Web friendly API?

The requirement I am given is to implement a web ppplication which utilizes Interactive Brokers's API to fetch data. I went through the IB API web page and came across two viable methods: TWS and IB ...
1k views

### Multi Factor Credit Risk Models

I am working in the area of building credit risk models. Upto this point, the model I have been focused on using the Asymptotic Single Factor Model, more popularly known as Vasicek Single Factor ...
880 views

### Statistical significance of trading systems that use indicators with long lookbacks

Let's say we have a trading system that trades daily, holding for one day, but uses an indicator that looks back over the last 5 years. A simple example could be the percent change in price of an ...
504 views

In high frequency and low latency trading, decisions are done on the spot by servers colocated in stock exchanges. This implies that those servers have immediate access to the information they need to ...
277 views

### Resources for performance statistics of trading systems

I'm looking for an online resource to study the usual performance statistics (CAGR, MaxDD, Payoff Ratio, Win/Loss Ratio, etc.) of trading systems, preferably trend-following systems. I know that ...
961 views

### Where do swap rates and/or long-term forward rates come from?

I apologize if this is supposed to be obvious, but ... . Libor spot rates are quoted up to a year, beyond that one can use Eurodollar futures to continue to build the curve. Let's say up to 3 years. ...
1k views

### Searching for pairs-trading in sub O(n^2 t) time

Let there be $n$ stock symbols. Let each stock symbol have exactly $t$ ticks (with all ticks miraculously aligned.) We are now searching for potential pairs for pair trading. A brute-force solution ...
414 views

### Major FX pairs - Pentahedron Data Structure

I read an interview today with Stephane Coquillaud. He talked about this idea of formulating a data set of the G5 currencies as a pentahedron. The obvious benefit is the fact that there is more ...
146 views

### Why for one year (and not two or three) government bonds (there is a spike for Switzerland & Denmark)?

On 10.10.2012, I have looked at the bond-rates and, both for Switzerland and Denmark, there is a discontinuity/spike at 1Y, as per below Switzerland: ON= -0.09, 1W= -0.180, 1M= -0.230, 3M= -0.2, 6M= ...
767 views

### Which objective function should I choose to minimize tracking error?

Let say I have $n$ assets and their returns over $m$ periods which are represented by a matrix $X \in \mathbb{R}^{m \times n}$, and I have some other asset with return over the same period which is ...
468 views

### Oscillatory time-series forecasting

I was wondering if this mean(160)-reverting/oscillatory time series "SUM" can be considered chaotic & forecastable to some extend short-term? ...
534 views

### CARA Utility function expected utility

I have been trying to undestand how the expected utility for a CARA negative exponential Utility function is calculated. In my particular case the variable has normally distributed returns. Could ...