# All Questions

281 views

### Practical implementation of Least Squares Monte Carlo (tweaks and pittfalls)

The Longstaff-Schwartz LSM approach is nowadays ubiquitous(at least in the academic literature) in pricing path dependant derivatives. Up to now I have mostly worked with lattice methods. My ...
1k views

### Markit PMI vs ISM PMI

What is the difference between the Markit Manufacturing PMI and the ISM Manufacturing PMI? The monthly number differs a lot, my understanding is that they are trying to indicate the same thing.
2k views

### Can the duration of a bond be greater than Time to Maturity

In the case of a vanilla bond I know that the duration will be less than the time to maturity. But I am observing that for a non-vanilla bond, the duration is greater than time to maturity. Can ...
184 views

### How to obtain specific information on FX trading systems?

I'm trying to compare trading venues using a quantitative product selection matrix (and eventually software vendors using a different matrix specifically for vendors), and I was wondering if anyone ...
114 views

### Linear-Boundary Crossing Problem for Brownian Motion

This is a question I came across while reading: $W = (W_t)_{t\geq{0}}$ is a standard BM. Let $\mu\in \mathbb{R}$, and let $\tau_{a}^{\mu}$ = $\inf(t>0;W_t = a + \mu{t})$ be the first passage time ...
86 views

### Fitting a sigmoid function to incomplete, structured, data

I have an incomplete data set that looks like this: and I believe that it will continue to form a sigmoid-like shape. How can fit a sigmoid curve to this data given my assumption about what the ...
75 views

### Sampling and/or asymptotic distribution of a function

Assume we have the following function: $$f(p) = \frac{1}{(1-p)d}\ln\left(\frac{1}{T}\sum_{t=1}^{T}\left[\frac{1+X_t}{1+Y_t} \right]^{1-p} \right)$$ where $d$ is a constant $T$ is a constant $X_t$ ...
2k views

### Free and tested optimization, statistical and visualization packages for C#

I am about to implement a variation of the LIBOR-Market-Model (complete with Least-Square-Montecarlo, calibration, pricing etc.) and decided to implement it in C#. The implementation will involve ...
488 views

### Pre-trade evaluation and risk assessment of option trading strategies (in market practice)

When a trader gets conclusion of the volatility is being underestimated (via volatility cone or some other technology), actually there are multiple ways for his trading. (Let's assume the underlying ...
172 views

### Beta and the Assumption of IID Returns

For two stocks that are independent and identically distributed (iid), do they have the same beta? Does the number of data points matter?
230 views

### How to calculate modeled asset volatility by industry factor?

Currently I am working with huge data frame which consists of a lot firms. For each firm in my sample I calculated asset volatility ( I am using Merton default probability model, so I have used 2 ...
70 views

### Forecasting amount of slippage in executing option spreads

Is there a good quantitative model to estimate how much slippage is required to execute a particular option spread trade? For example, let's say you want to execute an Iron Condor. Given X, Y, Z ...
1k views

### Asset-or-nothing Option Valuation in the Black and Scholes model

In standard Black-Scholes Model, compute the price of an asset-or-nothing put and asset-or-nothing call options. Write down the put-call parity relation between the asset-or-nothing call and put ...
80 views

### The concept of an incomplete market

While skeeming the relevant literature and web-sites I noticed that mostly the concept of the incomplete market is reduced to the following statement "A market is incomplete if there are more ...
418 views

### Algorithmical replication of a profit and loss function using different options

I often see questions like "Given this payoff graph (example below), construct a portfolio that replicates it." I want to know if there is an efficient method/algorithm to find the individual pieces ...
184 views

### Effect of interest rate on options prices

This might be another basic derivatives question. When interest rate rises, stock prices generally fall. Assuming an option's underlying is a stock, this should lower the option's price as well. ...
2k views

### What is the necessary level of Econometrics-Know-How for a quant

It seems quants increasingly use econometric models at work. As someone who has sold his soul to probability theory and stochastical analysis I would like to catch up. What are the econometric tools ...
178 views

### Best practice approach for calculating the PE-ratio

I am trying to calculate the historical PE ratios of a stock, but which date should I use to get the stock price in calculating the PE ratio? My current approach is to use the stock price of a day ...
636 views

### Plain Vanilla Interest Rate Swap

I'm trying to build an intuitive understanding of the following $\textit{The price of the replicating portfolio at time$t$of the floating rate receiver is}$ ...
483 views

### How to hedge a forward contract

I was asked this in an interview and I messed it up lol. This might actually be really basic. Let's say I signed a forward contract to buy NASDAQ at 4000 one year from now. How can I hedge this cash ...
3k views

### Sharpe Ratio, annualized monthly returns vs annual returns vs annual rolling returns?

I would like to calculate the Yearly Sharpe Ratio on MSCI World index I have monthly values of the index that falls back up to Jan/1970, hence about: 44 years, 528 months In order to calculate ...
195 views

### What return equation is Engle referring to in his Nobel lecture?

Engle comments in "Risk and Volatility: Econometric models and Financial Practice" that If the price of risk were constant over time, then rising conditional variances would translate linearly ...
157 views

### What's the link between EURIBOR3M futures volatility and rates volatility?

If I am not wrong, EURIBOR3M futures with maturity $T$, whose price is $F_{T}$, are quoted like contracts which express the underlying forward rates, $r_{T}$, as $$r_{T}=\frac{100-F_{T}}{100}$$ Now ...
89 views

### Triangular Arbitrage formula [closed]

i have 3 currencies AUD, USD and EU I am trying to work out the mathematical formula to work out if there is a spread/arbitrage opportunity as well as the maximum amount that can be conducted ( for ...
108 views

### How come the existence of ARCH effect is not a violation of Random Walk Hypothesis 3?

An ARCH (autoregressive conditional heteroscedastic) (1) model is: $r_t=\mu +a_t$, where $a_t=$return residual, and $\mu$ is the drift of the stock return $a_t=\sigma_t\epsilon_t$, where ...
103 views

### What is the arbitrage opportunity in Arrow-Debreu One Period market Model

The one period market model is made of 4 securities(A, B, C, D) and has 4 future states. Assume the market model is complete. and the state prices are (-2, 2, 4, 8). Given that I dont know the payoff ...
455 views

### Bloomberg Alternative for Quant Fund

Is there an alternative to Bloomberg for someone who only needs historical data (stocks, futures, indices) as well as what Bloomberg calls 'reference data' - i.e. what is the multiplier of ESU4, what ...
1k views

### Reading XBRL Data from the SEC FTP SITE

After I ftp into the SEC Edgar site (ftp.sec.gov) I am able to pull the appropriate financial statements (i.e., 10-k, 10-q, 8-k, etc.) onto my local computer. However, when I go to open these files, I ...
44 views

### What is shorting a asset that has negative price. Can anyone give me an example? [closed]

What is shorting a asset that has negative price. Can anyone give me an example?
108 views

### Time-Varying Volatility and Conditional Likelihood

Engle's comment in his seminal paper "Risk and Volatility: Econometric models and Financial Practice" mentions that I had recently worked extensively with the Kalman Filter and knew that a ...
85 views

### How do bond futures affect effective rate when used to hedge a bond's duration?

I'm trying to wrap my head around what happens to the net interest received when an invester goes short a bond future to fully hedge the duration of his long position in an actual bond. Does it ...
2k views

### S&P's Sovereign Ratings: Clarification on Definitions and Symbols

Similar to a question I asked earlier on, but I am now looking at S&P's sovereign ratings. Here, as in the case of Moody's, a few things are unclear to me in terms of the definitions used by ...
60 views

### swaps valuation

I am asked to solve the marking to market value(MtM) of a swap, unfortunely i´m having big troubles finding the solution, it´s a 5.5% (vs. LIBOR) 10-year swap, The notional is 500 mio USD and LIBOR ...
397 views

### Moody's Sovereign Ratings: Clarification on Definitions and Symbols

I'm working with sovereign ratings at present. With regard to Moody's there are a few things unclear to me in their definitions. Both questions refer to the sovereign rating history in Bloomberg CSDR ...
6k views

### Is there an intuitive explanation for the Feynman-Kac-Theorem?

The Feynman-Kac theorem states that for an Ito-process of the form $$dX_t = \mu(t, X_t)dt + \sigma(t, X_t)dW_t$$ there is a measurable function $g$ such that g_t(t,x) + g_x(t, x) \mu(t,x) + ...
292 views

### Does Bakshi, Kapadia and Madan (2003) VIX building approach underestimate volatility?

From a paper that shortly addresses an alternative approach to VIX-like index building: To test this approach, I've built a fake book of B&S options with constant volatility equal to ...
102 views

### Derivation of variance of Zhou (1996) volatility estimator

Does anyone know how to derive the Variance of Bin Zhou's volatility estimator (Theorem 1) in 'High-Frequency Data and Volatility in Foreign-Exchange Rates' (1996) Zhou 1996 Any help would be ...
186 views

### Minimum Variance Hedge Ratio in Binomial Framework

In order to find the minimum variance hedge ratio when holding a portfolio of vanilla call options and hedging with stock, you can do an OLS regression. In a binomial model framework, given ...
89 views

1k views

### What are some of the best quantitative finance websites? [closed]

Not looking to start a debate. Just want to learn more about the field and am looking for some websites with high quality, informative content.
4k views

### where can i get data for foreign exchange order flow

I need data for my thesis research on liquidity of foriegn exchange for order flow (aggregated daily) per currency traded for a period over the last 10-15 years. help!!
278 views

### Practical equity options pricing

To price a vanilla option, the following information are required : Strike price; Underlying price; Volatility; Maturity; Dividends rate; Repo rate; Interest rate; The strike, underlying price, ...
288 views

### Risk management of options

Your client would like to buy a digital call option. the digital call option pays the buyer in one years time (i.e at maturity ) N=1m SGD, if the SGD USD spot rate at maturity is above a prescribed ...
I have the following scenario: Let $X_i$ denote the event where some institution $i$ 'defaults' (don't worry about the exact definition of a default here, it is not relevant to the question at hand). ...