12
votes
3answers
2k views

At what point does someone using technical analysis become a Quant?

Sorry if the question sounds rough. It's not my intention to devaluate something I've not yet understood like Quantitative Finance. So to keep it simple: is Quantitative Finance a science, like ...
16
votes
5answers
4k views

Skew arbitrage: How can you realize the skewness of the underlying?

It's not clear to me how to realize skewness. In other words, how do you implement skew arbitrage? There seems to be no well-known recipe like in volatility arbitrage. Volatility arbitrage (or ...
14
votes
1answer
7k views

How to interpret the eigenmatrix from a Johansen cointegration test?

I ran a Johansen cointegration test on 3 instruments, A B and C. The results that I got are: R<=x | Test Stat | 90% | 95% | 99% r=0 --> 36.7 | 18.9 | 21.1 | 25.8 r=1 --> ...
21
votes
4answers
7k views

What is the best way to “fix” a covariance matrix that is not positive semi-definite?

I have a sample covariance matrix of S&P 500 security returns where the smallest k-th eigenvalues are negative and quite small (reflecting noise and some high correlations in the matrix). I am ...
9
votes
1answer
3k views

How to estimate probability of default from bond prices?

How do you use bond prices/yields to infer probabilities of default? I would think of it as follows: Create a relationship between default free (e.g., Germany) and defaultable (e.g., Greece) bond ...
7
votes
2answers
601 views

Fitting a generalized logistic distribution

I have a process that estimates the parameters for the following function using the NL2SOL algorithm. $C-[\alpha+\frac{\beta-\alpha}{1+e^-\theta(y_t-\delta)} \vartriangle y_t]$ The process currently ...
7
votes
3answers
344 views

Is there data on market participants at a particular moment?

I am looking for data on market participants at a particular moment (or some proxy/approximation). For example, how can I tell whether mostly big players and HFTs are dominating the market in ...
9
votes
3answers
2k views

How does volatility affect the price of binary options?

In theory, how should volatility affect the price of a binary option? A typical out the money option has more extrinsic value and therefore volatility plays a much more noticeable factor. Now let's ...
9
votes
3answers
1k views

What tools are used to numerically solve differential equations in Quantitative Finance?

There are a lot of Quantitative Finance models (e.g. Black-Scholes) which are formulated in terms of partial differential equations. What is a standard approach in Quantitative Finance to solve these ...
6
votes
2answers
2k views

Why is the SABR volatility model not good at pricing a constant maturity swap (CMS)?

I have heard that the SABR volatility model was not good at pricing a constant maturity swap (CMS). How is that?
22
votes
8answers
4k views

Excellent information source on advanced machine learning / data mining based trading?

I did check the related posts, like this one here. However, given if one already has knowledge in finance, machine learning and statistics, and wants to know something more advanced on machine ...
6
votes
2answers
2k views

Is Duration really the slope of the Price-Yield curve?

When looking at the Price-vs-Yield graph for a fixed rate instrument, we are often told that the duration is the slope of that curve. But is that really right? Duration is (change in price) divided ...
6
votes
2answers
1k views

optimal re-balancing strategy with asynchronous alpha signal

You want to construct an optimal portfolio. Let's say you have an alpha signal that arrives with some period (say quarterly). The alpha signal predicts arithmetic returns one-year ahead. You have ...
6
votes
3answers
1k views

How to calculate compound returns of leveraged ETFs?

Forewarning: this is a complete newbie question :-) I am starting to learn about ETFs by trying to do the numbers. When learning about the compounding effect in leveraged ETFs, I wanted to simulate ...
1
vote
0answers
313 views

Delta-Omega Hedging [closed]

I am currently trying to understand the in's and out's of options and more specifically hedging. I came across a document that was talking about Delta Hedging which is just making sure the delta of ...
14
votes
2answers
708 views

How do you distinguish “significant” moves from noise?

How do you distinguish between losses that are within the normal range for day-to-day shifts and situations with a real potential for loss? The specific application I have in mind is pattern ...
27
votes
9answers
6k views

Recommendations for books to understand the math in quantitative finance papers?

Can anyone recommend books that explain the math used in quantitative finance academic papers?
0
votes
1answer
611 views

Way to download current stock information (for free)? [duplicate]

Possible Duplicate: What data sources are available online? Is there a free way to download the current prices (and possibly other data) for stocks for various companies? Context: This is ...
13
votes
3answers
607 views

Empirical or theoretical quant insights that have shaped your thinking?

What are some quant theoretical or empirical insights that have shaped your thinking or provided a deeper conceptual basis for explaining returns and risk?
6
votes
1answer
469 views

How to build the short end of a zero coupon curve for non-core Eurozone countries?

I am in the process of building zero coupon curves for some countries in the Eurozone. I have the following data sets: Euribor and EONIA Swap rates Bond price and yields The bond prices (and thus ...
6
votes
1answer
251 views

How to assign equity analyst recommendations to a common, numeric scale?

Yahoo finance conveniently provides historic ratings from a number of analysts. Unfortunately, each analyst seems to use a different scale: buy/hold/sell, perform/outperform/neutral, overweight/equal ...
5
votes
1answer
1k views

Can anyone give me a practical example of pricing and calculating IV on equity index options? (i.e. using real market data)

I have been trading (mostly equity and equity index) options for a while now and I want to apply a slightly more quantitative approach to my trading - specifically, by calculating IV and incorporating ...
11
votes
2answers
987 views

When should you build your own equity risk model?

Commercial risk models (e.g., Barra, Axioma, Barclays, Northfield) have evolved to a very high level of sophistication. However, all of these models attempt to solve a very broad set of problems. ...
8
votes
1answer
801 views

How to compute modified-CVaR in the PerformanceAnalytics package?

My objective is to measure the modified-CVAR for a portfolio given its weights and matrix of security returns. Luckily the wonderful package PerformanceAnalytics has an ES() function that does just ...
4
votes
1answer
522 views

What is the origin of the words “put” and “call” that characterize derivatives?

And, in a second round, what is the origin of the "long" and "short" in characterizing the respective positions in assets? Any pointers to etymology, first occurrences, or related literature would be ...
6
votes
2answers
212 views

Is it better to grade hedging strategies based on the sum of absolute or squared hedging errors?

Let's say I have one strategy that has a hedging error of: 2, 2, -2, -2 Let's say I have another strategy that has a hedging error of .5, .5, 3, 3 Would it be a better idea to grade the hedging ...
4
votes
1answer
965 views

If VIX is the Implied Volatility of SPX, 30 days in the future, how many days into the future does VIX vol look?

Question: if VIX is the Implied Volatility of SPX, 30 days in the future, how many days into the future does VIX vol look? +60 or +30? Lets see if I'm on the right track: Premise 1: VIX is the ...
28
votes
3answers
2k views

What papers have progressed the field of quantitative finance in recent years (post 2000)?

My question is pretty simple: what papers do you feel are foundational to quantitative finance? I'm compiling a personal reading list already, drawn from Wilmott forums, papers referenced in ...
6
votes
3answers
976 views

What position-sizing methods are used in futures trading?

Beyond optimal / partial f and a few other older methods, there's very little information out there for futures trading.
-2
votes
1answer
70 views

Who is in debt when a bank investments in commercial paper? [closed]

If a company issues commercial paper and the bookkeeper, bank A, receives a buy order from bank B, in which bank B creates credit to buy the commercial paper, does the company has a credit in bank B ...
9
votes
1answer
503 views

What to ask for in a good prototyping framework?

Reading up on quantitative methods, model development, and back-testing, one obvious question springs to mind: What should one ask of a prototyping (model testing) framework? I know a lot of people ...
11
votes
5answers
548 views

What benefits are there to employing agile software development methodologies for quants?

Perusing the other SE network sites, particularly Programmers, I often find vigorous support for various agile software development methodologies, particularly the various values known as Extreme ...
5
votes
3answers
116 views

Which lags or percentiles should be run in a batch when calculating Value-at-Risk?

Are there any "standard" VaR calculations run in a batch? For example, testing a VaR calculation with a lag of 1,2, 5 or 10 days over 2 years? Same question for the percentile, 1%, 2.5%, 5% etc.
6
votes
2answers
219 views

What is more appropriate: the EMA of the option price or the EMA of the underlying?

I'm progressing, all too slowly, on a site that aims to show real-time numbers for options that are listed on the CBOE. Most of the instantaneous numbers are all set. Now I'm going to pay attention to ...
12
votes
3answers
682 views

How to price a volatility-index option?

There exist several volatility indices, such as the CBOE Volatility Index (VIX). There are also options on such indicies. What is the best way to price a volatility-index option? Is there a simple ...
10
votes
2answers
382 views

How to “uncluster” a set of financial data?

I am attempting to evaluate and compare the profit factor of different "test runs" of a FOREX trading strategy. My problem is that, despite an average time between orders of 2hr+, some of these runs ...
7
votes
1answer
137 views

How should you manage lot sizes in this situation?

Imagine that prior to entering the market you know beforehand the profit factor of similar situations. For example: ...
0
votes
2answers
2k views

Open source alternative to excel for investment and portfolio calculations [closed]

I am a Linux user, and taking an investment and portfolio management course that uses excel. I was wondering if there are open source alternatives to excel for optimal portfolio calculations? If yes, ...
18
votes
5answers
8k views

How to identify technical analysis chart patterns algorithmically?

I'm working on a small application that will provide some charts and graphs to be used for technical analysis. I'm new to TA but I'm wondering if there is a way to algorithmically identify the ...
12
votes
2answers
575 views

Issues when considering a quantitative trading/finance firm

I have an upcoming quantitative trading interview (prop desk at a large bank), and I would like to have some good questions to ask about the group. However, I am changing fields from academia and I do ...
7
votes
2answers
336 views

Do you know a good article on ETF's counterparty risk analysis?

I am at the moment considering investing into ETFs, but I am looking first to understand how these products really work. Indeed, it is my understanding that ETF can vary in terms of structure, thus ...
1
vote
2answers
2k views

Black Scholes and Monte Carlo implementations in Java [duplicate]

Possible Duplicate: Is there an all Java options-pricing library (preferably open source) besides jquantlib? Can anyone recommend a library with an implementation of Black Scholes and Monte ...
6
votes
1answer
509 views

Are shorter holding period strategies better?

Consider two statistically identical strategies (identical information ratios, sample size, ratio of transaction costs to total profit, etc.) except that one has a much shorter average holding period. ...
8
votes
2answers
1k 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?
12
votes
1answer
3k 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 ...
6
votes
4answers
236 views

What is a sound way to project Company X's earnings over the next Y years?

I need to estimate cumulative earnings over the next Y years and I'd like to find a solution that is theoretically sound and relatively simple. Can anyone recommend an approach? Given: I have 30 ...
11
votes
3answers
4k views

Is there an all Java options-pricing library (preferably open source) besides jquantlib?

I am looking for an all-java implementation of black scholes, preferably open source. I found jquantlib and quantlib (C++). Any other recommendations? The jquantlib site seems to be down. I'd prefer ...
6
votes
4answers
860 views

What is the connection between default probabilities calculated using the credit rating and the price of a CDS?

I'm working on a tool to price Credit Default Swaps. I've already done the standard pricing tools. I'm working on a pricing tool which uses the credit rating for the default probabilities used in the ...
-6
votes
1answer
376 views

get live data from national stock exchange [closed]

http://billing.finance.yahoo.com/realtime_quotes/signup?.src=quote&.refer=quote Can i get real time data(from NSE india) using Yahoo finance API after subscribing to their service ?
20
votes
6answers
1k views

Why do some anomalies persist while others fade away?

In their 1990 book, A Non-Random Walk Down Wall Street, Andrew Lo and Craig MacKinlay document a number of persistent predictable patterns in stock prices. One of these "anomalies" is variously known ...

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