# All Questions

316 views

### How to apply Levenberg Marquardt to Max Likelihood Estimation

In this paper on p315: http://www.ssc.upenn.edu/~fdiebold/papers/paper55/DRAfinal.pdf They explain that they use Levenberg Marquardt (LM) (along with BHHH) to maximize the likelihood. However as I ...
234 views

### what is the actual point of vega on real option data

For a call option, we know that the vega is the derivative of the price wrt to the volatility. However the volatility, in that context, actually refers to the implied volatility of the specific call ...
178 views

### economic facts that causes the financial time series to be heavy tailed

When reading a tutorail on extreme value theory, I once meet the following claim ...
2k views

### Regime-Switching Model for detecting market shifts

I'm always wondering whether anyone has utilized regime-switching models successfully in forecasting or trading. Academia has long discussed this topic in-depth, such as using Regime Switching ...
712 views

### How to combine trading signals to achieve higher capital efficiency?

I trade use a completely automated approach where all signals are generated by proprietary trading strategies. However, recently I encountered an challenging problem: Imagine we have 3 Strategies ...
1k views

### Self-financing and Black-Scholes-Merton formula

Self-financing is an important concept in financial product replicating, normally used in pricing. I read about several ways to derive Black-Scholes-Merton (BSM) formula. Seems some approaches ...
776 views

### Does pricing quant still have bright future?

With regulators tightening the tether, tradings are shrinking and exotic products are fading out, or as my quant friends told me so. By the lag of education to the market, more MFE graduates are ...
157 views

### In a Black-Scholes world, why must volatility be strictly increasing in time-to-expiration?

This question is from Rebonato's Volatility and Correlation 2nd Edition. Rebonato states that if $\sigma_T^2T$ is not strictly increasing, it would be simple to set up an arbitrage. Unfortunately (...
462 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 ...
140 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 ...
1k 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 ...
64 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 ...
828 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 ...
417 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 ...
696 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 ...
365 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 ...
178 views

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. ...
178 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 ...
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 ...
3k 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. ...
171 views

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} Z_t^{T_j})[R(t,... 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 836 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 259 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 115 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 692 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 708 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 124 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 387 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 99 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 420 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 4k 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 173 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 ...
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 ...