6
votes
3answers
969 views

Lib for Arbitrage-Free Smoothing of Implied Volatility Surface?

I'm looking for an implementation of Arbitrage-Free Smoothing of the Implied Volatility Surface - Matthias R. Fengler. Does anyone know of any existing libraries that have implemented this paper? Any ...
6
votes
2answers
1k views

Recommendation for a library to calculate the local volatility surface?

I'd like a library to calculate the options local volatility surface, i.e. the options implied volatility surface for a collection of strikes and their bid/ask prices. Here are the libraries I've ...
8
votes
1answer
2k views

How to calculate the local volatility surface using QuantLib?

I'd like to calculate the local volatility surface for a series of option strikes, similar to the surface described in this paper: http://www.ederman.com/new/docs/gs-local_volatility_surface.pdf ...
7
votes
1answer
501 views

Modified Durations of Different Noncallable Bonds and function of Maturity

I'm hoping someone could help me understand this subject better. Basically I am reading a book and it shows a table ...
5
votes
1answer
186 views

Reliable Economic Data on China

Trying to develop a new strategy, but I need to find reliable economic data on China. It's well known that the official figures there don't tell you everything (to put it nicely), so I was wondering ...
8
votes
2answers
1k views

Algorithm for the choice of stocks for a equity scalper/market maker to engage in?

Assume a scalper/market maker who is operating on an exchange with $N$ stocks with different characteristics such as current market value, average bid-ask spread, average daily volume and historical ...
3
votes
1answer
436 views

How do I get the average transition matrix for three consecutive years?

I have a one year transition matrix for three consecutive years. Multiplying these three matrices together yields the three year transition matrix. I want to obtain the average transition matrix for ...
17
votes
7answers
6k views

Why is volatility mean-reverting?

We all know it does mean revert. The question is why. What's making volatility mean-revert? Is it some sort of cyclical behaviour of option traders? The way it's calculated? Why?
11
votes
7answers
2k views

Looking for a recommendation for a real life volatily trading book.

Recently I started working in an algotrading company as a programmer. After I studied that subject a little in the university and read a book or two in that field I gained a little knowledge in that ...
5
votes
1answer
183 views

How to scale option pricing components in regard to time

I am looking at closed-form options approximations, in particular the Bjerksund-Stensland model. I have run into a very basic question. How should I scale the input variables in regard to time? My ...
5
votes
1answer
220 views

How are dual class shares different from non dual class shares from a market makers' perspective?

Assume a stock Foo with a single share class. Furthermore, assume a dual class stock Bar with classes I and II with different voting rights. The shares in the different classes have equal cash flow ...
13
votes
6answers
1k views

Setting the r in put-call parity?

Put-call parity is given by $C + Ke^{-r(T-t)} = P + S$. The variables $C$, $P$ and $S$ are directly observable in the market place. $T-t$ follows by the contract specification. The variable $r$ is ...
8
votes
2answers
541 views

What are important model and assumption-free no-arbitrage conditions in options trading?

In the paper "Why We Have Never Used the Black-Scholes-Merton Option Pricing Formula" (Espen Gaarder Haug, Nassim Nicholas Taleb) a couple of model-free arbitrage conditions are mentioned which limits ...
6
votes
0answers
272 views

Transformation of Volatility - BS

I have recently seen a paper about the Boeing approach that replaces the "normal" Stdev in the BS formula with the Stdev \begin{equation} \sigma'=\sqrt{\frac{ln(1+\frac{\sigma}{\mu})^{2}}{t}} ...
10
votes
2answers
710 views

Why is the ratio of Hi-Low range to Open-Close range close to 2?

I tried it in several symbols and timeframes with the same result: $$\frac {mean(HIGH-LOW)}{mean(|CLOSE-OPEN|)}$$ ...
23
votes
5answers
16k views

What are some useful approximations to the Black-Scholes formula?

Let the Black-Scholes formula be defined as the function $f(S, X, T, r, v)$. I'm curious about functions that are computationally simpler than the Black-Scholes that yields results that approximate ...
4
votes
1answer
626 views

Better understanding of the Datar Mathews Method - Real Option Pricing

in their paper "European Real Options: An intuitive algorithm for the Black and Scholes Formula" Datar and Mathews provide a proof in the appendix on page 50, which is not really clear to me. It's ...
8
votes
2answers
629 views

Minimizing Correlation

Is there a quantitative method in monitoring trades to reduce the possibility of correlated trades?
5
votes
5answers
932 views

Do binary options make any sense?

Reading from "www.nadex.com" - the copy reads "Binaries are similar to traditional options but with one key difference: their final settlement value will be 0 or 100. This means your maximum risk and ...
8
votes
3answers
2k views

What is an effective way of backtesting VWAP execution?

From Optimal Trading Strategies : There are two main reasons why traders execute orders using a VWAP trading strategy. First, a VWAP strategy is the trading strategy that minimizes market ...
10
votes
5answers
5k views

Using linear regression on (lagged) returns of one stock to predict returns of another

Suppose I want to build a linear regression to see if returns of one stock can predict returns of another. For example, let's say I want to see if the VIX return on day X is predictive of the S&P ...
3
votes
1answer
1k views

Valuing Total Return Swaps

In my quest for simulated data, I am trying to generate prices for Total Return Swaps by calculating the NPVs of the fixed and floating leg. My problem: Given the fixed leg, how do I set the spread on ...
3
votes
1answer
349 views

European turbo warrants

Totally new to the world of quant finance, so perhaps this is an odd question... Does there exist an American equivalent to the German style "knock out zertifkate"? (The name might be slightly ...
4
votes
1answer
485 views

Where can I find European and Scandinavian convertible bond prices?

I'd like to expand on the Data Sources Online question. I found this site for a German convertible bond, all free and not requiring a sign-up. Börse Stuttgart German Google I am looking for ...
5
votes
3answers
7k views

Correct way to find the mean of annual geometric returns of monthly returns?

Say I'm given I set of monthly returns over 10 years on a monthly basis. What is the correct way to find the geometric returns of this data? I ask because a classmate and I are on different sides of ...
13
votes
6answers
2k views

Why are options trades supposed to be delta-neutral?

I'm reading Natenberg's book, and he says that all options trades should be delta neutral. I understand that this prevents small changes in the underlying price from changing the price of the option, ...
6
votes
3answers
385 views

Parameters for pricing option on EDF

Ladies and Gents, Im writing a quick routine to calculate implied vols for options on EUR$ futures with Bloomberg data. My question concerns the part where I have all my inputs and am ready to pass ...
6
votes
3answers
359 views

Understanding CDOs

I watched every documentary on the financial crisis and CDOs, tried to understand Wikipedia etc.. but still not getting the full picture as examples seem to be limited (or complicated). Say ...
5
votes
1answer
644 views

Back office processing for FX trades

Can someone provide (or point me to) a summary of back office processing nuances specific to FX trading? For example, I know that there are several FX-specific risks that must be managed. They include ...
11
votes
5answers
3k views

Should Sharpe ratio be computed using log returns or relative returns?

I am trying to reconcile some research with some published values of 'Sharpe ratio', and would like to know the 'standard' method for computing the same: Based on daily returns? Monthly? Weekly? ...
9
votes
2answers
472 views

Effective Euro-USD (EURUSD) Exchange Rate Prior to Euro's Existence

Motivation: I am running a quantitative analysis that requires long-term, exchange rate data. Problem: Does anyone have methods for dealing with the EURUSD exchange rate prior to the Euro's ...
4
votes
2answers
323 views

Is it common to use multiple brokers for risk reduction?

Would it be considered appropriate risk-management or overkill to utilize multiple brokers to manage a given trading strategy? A couple specifics: I'm interested in what a reasonably-sized hedge ...
10
votes
2answers
732 views

Quantitative Derivatives Trading vs. Time

Most quantitative investment strategies focus on the changing prices of a commodity or equity over time. Derivatives, however, make this more complicated. How can I apply quantitative strategies to ...
5
votes
2answers
2k views

Quantmod: what's the difference between ROC(Cl(SPY)) and ClCl(SPY)

I feel like I'm missing something fundamental here, but I can't shake the feeling that these two series should be equivalent. /edit: there is also dailyReturn(Cl(SPY)). I've seen all 3 of these ...
9
votes
1answer
952 views

What are the advantages / disadvantages of the ANTICOR algorithm?

The algorithm is introduced in the paper, Can We Learn to Beat the Best Stock. The obvious advantage is superior risk-adjusted returns (if you can actually achieve them). Transaction costs and ...
5
votes
3answers
8k views

How do I calculate the delta of a convertible bond?

How can I find the delta of a convertible bond to be used for hedging?
13
votes
3answers
2k views

How to incorporate technical indicators into neural networks?

I plan to develop a neural network to trade commodities futures, but while messing around with some code, a question came up. If I understand correctly, people use various technical indicators with ...
4
votes
2answers
3k views

When should we use SWIFT versus FIX?

I've read documents that claim that SWIFT and FIX are not competing protocols for financial transactions and messaging. And yet, I have not come across a clear articulation of when to use SWIFT versus ...
9
votes
3answers
3k views

Total Return measurement paradox w/ Adjusted Close Prices

Using total return calculations is critical in developing security selection models. The standard way to measure total return is to develop a series of price-adjusted data. Investopedia describes the ...
13
votes
3answers
4k views

Free market data (delayed or snapshot)

I know there are similar questions but I don't think there are any identical ones. Basically, I'm looking for one of these two things. Delayed market data feed. A tick by tick feed, but delayed by ...
29
votes
6answers
11k views

How are correlation and cointegration related?

In what ways (and under what circumstances) are correlation and cointegration related, if at all? One difference is that one usually thinks of correlation in terms of returns and cointegration in ...
5
votes
3answers
303 views

Maximum friction-free trades

I have a trading system I would like to test for the S&P 500, or another very similar instrument. I'm looking to make approximately 10-15 trades per month. I know if you have a Vanguard account, ...
8
votes
2answers
2k views

Equity Risk Model Using PCA

I'm trying to build a simple risk model for stocks using PCA. I've noticed that when my dimensions are larger than the number of observations (for example 1000 stocks but only 250 days of returns), ...
9
votes
2answers
592 views

When is the LIBOR market model Markovian?

The question is inspired by a short passage on the LMM in Mark Joshi's book. The LMM cannot be truly Markovian in the underlying Brownian motions due to the presence of state-dependent drifts. ...
10
votes
2answers
1k views

Simulating Returns

I'll start this off with a rather broad question: I am trying to simulate returns of a large number of assets within a portfolio of different classes - equity and fixed income in a first step, say 100 ...
4
votes
3answers
10k views

Trade matching versus affirmation

I'm looking for a clearly articulated description of the difference between trade matching (e.g. Omgeo's CTM) and trade affirmation (e.g. Omgeo's Oasys). From what I understand, they both involve ...
0
votes
1answer
311 views

British hedge/mutual funds performance comparison website [closed]

Imagine a British investor with $10-100k in her pocket. She wants to see the previous performance of various British and overseas funds to choose the one to invest. And she wants to filter out the ...
2
votes
1answer
473 views

How does currency valuation depend on the cash reserve ratio for a country?

Currency valuation (with respect to other currencies) is an important parameter in finance, but how is it related to the cash reserve ratio?
5
votes
1answer
241 views

Multiple comparison problems

I recently read a blog entry where some statistics were generated for a common technical analysis indicator. Below is the link. My question shows up close to the bottom under the name bill_080, in ...
18
votes
8answers
7k views

How are cryptography and speech recognition technology applied to forecasting financial markets?

One of the answers to my previous question regarding the strategy of Renaissance Technologies, there was a reference to The Quants: How a New Breed of Math Whizzes Conquered Wall Street and Nearly ...

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