1
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2answers
273 views

Brokers offering low-cost / free accounts [closed]

I'm attempting a "hello world" of live algorithmic trading. A script that pulls in tick data, presents it visually, and allows me to buy / sell at the press of a button. Also a toggle between { fake ...
1
vote
1answer
637 views

Price of a down-and-out call in terms of European call

If $EC(S_0, K, \sigma, r, T)$ represents the price of a European call option with strike $K$, expiry $T$, initial price $S_0$, volatility $\sigma$ and where the constant interest rate is $r$, then I ...
1
vote
1answer
378 views

Derivation of the Nelson-Siegel model and proof of arbitrage

1. I am looking for a derivation of the Nelson-Siegel model $y(m)=a+b\left( \frac{1-e^{-\lambda m}}{\lambda m}\right)+c\left( \frac{1-e^{-\lambda m}}{\lambda m} -e^{-\lambda m} \right)$ It is ...
1
vote
4answers
403 views

Error message in calculation Implied Volatility

I am unsuccessfully trying to find the Implied Volatilities for the SPX on a given date using information of the CBOE, as well as Open Interest, but as I run the code I am getting and error message ...
1
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1answer
63 views

Scaling Intervals in Diffusion Process

I know this is a very elementary question but... when modeling asset prices through a stochastic process as in $$dS_t=S_t μ dt+S_t σdW_t,$$ where the following is a wiener process ...
1
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2answers
1k views

VIX intraday data

Where I can high-frequency intraday data on VIX? Is it available on Bloomberg Terminals? I see many questions posted on Quant.stackexechange about VIX options therefore I am sure someone knows where I ...
1
vote
1answer
209 views

Examples of non-increasing variance of a time homogeneous Markovian process

This is an edit to the previous question, on stationary process, which was answered by Richard below. Let $x_t$ be a zero mean, time homogeneous Markovian process over time $t$ starting from ...
1
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2answers
197 views

Quotes and Transactions Streams from Exchange

I have possibility of taking 2 types of real time streams from some exchange: bid-ask quotes (fresh quotes from order book) transaction log (transactions matched by exchange) I'm curious what ...
1
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1answer
195 views

Basics about the scaling property of volatility

It is a usual practice to calculate realized volatility $\sigma$ using the square root of the usual variance estimator $\hat{{\sigma}²}$. This is done using the stock log returns (practitioners ...
1
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1answer
1k views

Probability of a return from historical average and standard deviation

I have a question from a sample exam paper that I'm having some trouble figuring out. The question is: Bavarian Sausage stock has an average historical return of 16.3% and a standard deviation of ...
1
vote
1answer
1k views

Question about weighted midpoint formula

The answers from these two replies seem to contradict each other. The first numerator is bidSize*bidPrice + askSize*askPrice but the second is bidSize*askPrice + askSize*bidPrice. Price functions ...
1
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2answers
185 views

How to value VIX Option?

Could someone tell me a common method for pricing VIX Options please? Do I need to use a Stochastic Vol Model? Or Local Vol Model is suitable as well? Should the model be modelling S&P 500 and ...
1
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2answers
5k views

How to normalize stock data

Please advise how can i normalize stock prices. Recently, I've been using such formulas: Log prices = Ln(Close(t)) Close(t)-Mean (Close(t)-Mean)/(StdDev) Ln(Close(t))-Mean Is there any other ...
1
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1answer
2k views

How to apply Ljung Box Test?

I am checking the closing prices(about 9000+ prices) of the stocks data to test for randomness. The test I am using is Ljung Box test, in MFE toolbox for MATLAB, I used 300 data of closing prices, ...
1
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1answer
2k views

VaR for FX forwards

I am trying to figure out some of the commonly used approaches to deal with FX forwards (in a currency portfolio containing spots, forwards and swaps) that would allow me to calculate the one day VaR ...
1
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1answer
246 views

Why use leverage when it does not improve the risk/reward ratio? [closed]

Leverage will increase gains when things go right but will also increase losses when things go wrong. Mathematically speaking, it does not change the risk/reward ratio (or does it?). Since ...
1
vote
1answer
137 views

Is it better to hedge or reduce the position size? [closed]

Traders hedge to reduce their risk. However, wouldn't reducing the position achieve the same results while keeping the risk management process simpler? At least, one need not worry about making the ...
1
vote
1answer
142 views

Calculating spot level using tick data

What is a proper (or commonly used/accepted) way of calculating some spot value with tick data? At the moment I can think of two options: Take the latest available best bid, latest available best ...
1
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1answer
259 views

“Friendly” papers about maximum smoothness yield curve modelling

I'm currently looking to implement some version of the yield curve modeling techniques in the maximum smoothness framework. The papers I have found so far explains the theory pretty well, but I find ...
1
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2answers
902 views

Brownian motion - first passage time

Can anyone point me to the expression for the first passage time for a geometric Brownian motion process X(t) as a function of the starting point, threshold, drift and diffusion parameters. I am ...
1
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1answer
97 views

How do I take an unbiased, sector neutral sample from a stock index?

I am looking to take a cross sector subset of a larger stock index universe. What steps to I take to assure that sector representation is as equal as possible to help smooth out my variance(while ...
1
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1answer
105 views

Trading Elasticity Research

Is there any good research on the price elasticity of trading in financial markets? Things like optimal fee structures and the like?
1
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2answers
1k views

Covariance of a GMV portfolio with any asset

Why is that the covariance of a global minimum variance (GMV) portfolio in the efficient frontier with any asset is always the same?
1
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2answers
77 views

different amount of information on return correlations from shorter and longer periods?

I want to calculate annual excess returns on portfolios using monthly (total) returns for a CAPM (for the assets in the portfolio as well as for the benchmark), in order to have more information on ...
1
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1answer
118 views

What is the smart way to reallocate money?

We are running a portfolio of fund managers in our fund. When one of the managers hits the max DD constraint we pull money from this manager. This may happen in the middle of the allocation period and ...
1
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1answer
300 views

Help with understanding a normal distribution/probability question

Could someone please help me translate what this is saying on page P15, section 4.2: http://www.ntuzov.com/Nik_Site/Niks_files/Research/papers/stat_arb/Ahmed_2009.pdf Specifically: When the ...
1
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1answer
402 views

Need to match my bond price calculation to that of Bloomberg, currently failing hard

I have a fixed-coupon bond with the following characteristics: ...
1
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1answer
165 views

Regression of Unequally Weighted Portfolio against a Single Index

When I regress a single stock against a market index, I get a high value of R2 and beta closer to 1. APPL.fit <- lm(APPL ~ JKSE) When I regress an unequally ...
1
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1answer
386 views

Blackbox Optimization + Bootstrapping = Parameter Selection?

Most automated trading systems have a number of embedded parameters such as the lookback periods, entry and exit thresholds, etc. This is like the moving average crossover system or any of the systems ...
1
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1answer
177 views

Add transaction costs to prediction

An algorithm predicts price movement by some certainty and it invests proportional to the confidence level. Predictions range from -1 to +1, -1 meaning sell for a value of ...
1
vote
1answer
444 views

Greeks of Basket

I am considering a product composed of 10 underlying assets. The maturity is 5 year. Each year if the performance of the equi-weighted portfolio reach a barrier, it pays a coupon. My question concern ...
1
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2answers
220 views

changes in open interest vs changes in underlying volume

Has a relationship been noted? Mostly, I'd like to know if the open interest increases on an underlying, does the underlying usually see increased trading? My guess would be "yes" since MMs can ...
1
vote
1answer
259 views

Regression giving the return on a stock

I have this regression equation: $$ R_{stock} = 3,28\% + 1,65*R_{market} $$ Where $R_{stock}$ is the expected return on a stock and $R_{market}$ being the market risk premium. I have a one-year ...
1
vote
1answer
151 views

Volatility Index Weighting Scheme

Among the several weighting schemes used for constructing volatility indices, which ones are the best for forecasting (realized) volatility? I've constructed a volatility index for emerging markets ...
1
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1answer
60 views

Why might a manager consider using an interest-rate in which the notional principal amount declines over time?

Say swap would be used to convert the payments of its portfolio of fixed-rate residential mortgage loans into a floating payment. Why might a manager consider using an interest-rate in which the ...
1
vote
1answer
190 views

Eurdollar Futures

Trying to understand the Eurdollar market a little better. I understand it's the market for dollar denominated deposits outside the US (not just in Europe). They are unregulated and not subject to ...
1
vote
1answer
356 views

Probability of trade's exit orders being triggered in random-walk market

When placing a trade with Stop Loss and Take Profit orders in a hypothetical random market (i.e. 0.5 probability of up tick and 0.5 probability of down tick), assuming: x is the distance in ticks of ...
1
vote
2answers
274 views

Absolute Dollar Form Of Kelly Criterion

Is there a absolute dollar form of the Kelly equation $f=\frac{m}{s^2}$? (i.e. one that does not use percent returns).
1
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1answer
118 views

Exposition of Growth in a Perpetuity

Something that's bugged me since I've ever learned anything about finance: Philosophically(?) speaking, why does growth subtract from a perpetuity's return? I know the mathematical explanation, but ...
1
vote
1answer
285 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 ...
1
vote
1answer
444 views

Unsystematic/Idiosyncratic/Firm-specific volatility/variance in the market model?

I was asked to use idiosyncratic volatility as a regressor in a cross-sectional regression upon cross-sectional returns as the dependent variable. Returns can be thought of as the raw log stock return ...
1
vote
1answer
247 views

Fastest algorithm for extracting 25% and 75% marks

I'm hand rolling some visualization algorithms. Extracting the min/max of a time series is $O(n)$, for n entries. If I want the 25% and 75% mark, I could use an $O(n \log n)$ time sort, then get the ...
1
vote
2answers
518 views

What is the instantaneous P&L of a Variance Swap?

What is the instantaneous P&L of a variance swap. Is it $(\sigma^{2}_{t}-\sigma^{2}_{implied})dt$?
1
vote
1answer
682 views

Does amortization of bond start accumulating on trade date or settlement date?

I am sorry if this is not appropriate here. We are building a wealth management system and I really would like to know whether amortization of bond start accumulating on trade date or settlement date ...
1
vote
2answers
155 views

How can I estimate the parameters of an option value model of retirement?

I am modelling an option value model of retirement, see for instance Stock and Wise (1990). I am however not sure to which class of problems this model falls into and hence which optimization method I ...
1
vote
1answer
141 views

Brent Crude Data

I am trying to locate historical volatility data (5+ years) for Brent Crude? Does anyone know where I might be able to source such data?
1
vote
1answer
543 views

T-note returns from T-note yields … derivation of Damodaran's formula

Damodaran's historical data on 10-year T-note returns (found here) uses the following formula to calculate the 1-period total return on a T-note ($R_1$) given the 10-year constant maturity ...
1
vote
2answers
143 views

Derivatives with a floating Libor leg

If Libor is found to be fraudulently fixed, are any of the derivative contracts with a floating libor leg still valid?
1
vote
1answer
169 views

help me compare methods to compute one instrument price from another instrument price

Assume we have two instruments A and B. Also time is increasing from 1 to n. Let's say that ...
1
vote
1answer
256 views

Normalized data

I am new to this. I trained and tested my data using SVM in Matlab with the autoscale option true => the data would be normalized with unit SD. Let's say the training data have the price around 200. ...

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