# All Questions

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### How to change to risk neutral measure in a mean reversion process?

For example, in the Ornstein-Uhlenbeck process do I just replace the drift term with the risk free rate, like in the GBM case?
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### Delta Hedging for 2 Factor Models

If the value of an option at Maturity is what is the off-setting position you take for X and Y, if you are i)Long Call of the option ii)Short Call of the option iii)Long Put of the option iv)Short ...
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### Optimal Financing Mix: Cost of Capital Approach

According to Cost of Capital approach to optimal financing mix we can calculate Cost-of-Capital-minimizing $\frac{D}{E}$ ratio as follows: $\frac{D}{E}_{opt} = argmin_{\frac{D}{E}}WACC$, where ...
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Given random variables $Y_1, Y_2, ... \stackrel{iid}{\sim} P(Y_i = 1) = p = 1 - q = 1 - P(Y_i = -1)$ where $p > q$ in a filtered probability space $(\Omega, \mathscr F, \{\mathscr F_n\}_{n \in ... 1answer 78 views ### What is the yield when a floating-rate note is issued above/below par? I am new in this area so all help is much appreciated! Let's say a 3-year floating rate note pays a coupon of LIBOR+100 bps, and is issued at a premium with price = 100.5. I understand that this ... 1answer 29 views ### no arbitrage condition for paylater option a paylater option has the folowing payoff:$(S_{T}-K)_{+}-P1_{S_{T}>K}$. To determine the fee P that the option holder must pay, we must write the non arbitrage condition. Why is it this: ... 1answer 90 views ### Anomaly or feature from Quantmod in R regarding getFX - currency data I am using R to analyse stock data, using the quantmod package to get all sorts of data, but here specifically FX data using the function ... 1answer 56 views ### Is anybody using 13F-HR data for making strategies? I see that a lot of quants work on high frequency strategies. Mostly used data are prices, volumes. I wonder, is anybody using data on funds positions, which they have to disclosure quarnerly under ... 1answer 82 views ### QuantLib: New Instrument derived from VanillaOption + PricingEngine that must work for both VanillaOption and the derived class The derived class is a Vanilla Option on a Future and I need to specify the expiry of the underlying future which is in general different (later) than the expiry of the Vanilla Option. I have ... 2answers 112 views ### Pricing Forward Start Option with PDE I am looking for references (books and papers) or suggestions on how to price forward starting calls using a PDE approach typically in the Heston model (In the BS world, the computation is trivial), ... 1answer 43 views ### Negative risk neutral probabilities economic argument We know of plenty ways to extract risk neutral distirbutions from option prices (for example Breeden Litzberger) but there is no real analysis on how to interpret negative state prices (Haug 2007 for ... 2answers 89 views ### Fourier Transform In a notes on "Option Pricing using Fourier Transform": Price of plain vanila call is given by $$C(t, S_t) = e^{-rT}\mathbb{E}^{\mathbb{Q}}[(S_T -K)^+|\mathcal{F}_0] = e^{-rT} \int_K^{\infty} (S_T ... 2answers 182 views ### Logistic Regression of tick data I've been given some data (it's financial tick data) and I want to predict based on some observed variables whether the next move will be up, down or unchanged. So I have been trying to use ... 1answer 38 views ### Is the delta of a call option a martingale using the stock numeraire? For example in the Black_scholes case the delta N(d1) does appear to be equal to the expectation (under the stock measure) of the delta at expiration, which is the expectation of I(S(T)>K). Is ... 1answer 46 views ### How to Calculate Return Option with Forward Measure I am trying to computing the price of an option at time t, with payoff X = \frac{S_{T_2}}{S_{T_1}}, at time T_2, where t < T_1 < T_2. Here how I compute it: Using the forward measure ... 1answer 49 views ### Methods or models to predict activity of clients of a bank I'm a Physicist but I'd like to know if there are some methods or models to predict the activity of the clients of a bank. I heard that banks are interested in this sort of analysis so I got curious ... 1answer 54 views ### When to include dividends in option valuation When using the Black-Scholes-Merton method for option valuation which takes into account dividends, does the dividend only get included into the calculation of options whose lifetime straddles the ... 1answer 115 views ### CDO selling or buying credit protection? I think there is an error in the Meissner text - Correlation Risk Modeling and Management and can't find an errata for this text to verify. On page 19 the foot note reads: Shorting the equity ... 1answer 65 views ### Call and Put Prices Equal at Forward Price - Why? Consider a European call and put with values C_t and P_t, respectively, under the Black-Scholes model. By put-call parity,$$ C_t - P_t = S_t - Ke^{-r(T-t)} $$for expiration time T. Note if ... 3answers 142 views ### delta hedging strategy for OTM option Wondering how you would think about the following thought experiment - suppose you sell an OTM call option and plan to implement a delta hedging strategy whereby if the price of the stock were to ... 2answers 95 views ### Smoothing factor of Exponential Moving Average I'm trying to implement an Exponential Moving Average indicator, but I'm sort of stuck on the smoothing factor. What I've come up with:$$\frac{1}{N}\sum\limits_{k=0}^N \alpha^{k} P_k$$Where N is ... 1answer 43 views ### Listed companies on NASDAQ Where can I find a list of listed companies on NASDAQ from 2000 to 2014? 1answer 35 views ### SVI calibration, why fit to option prices and not implied volatilities Bear with me. Related (very good) question: How to calibrate a volatility surface using SVI From this paper http://arxiv.org/pdf/1204.0646.pdf, page 21. Why does the recipe suggest fitting to option ... 1answer 53 views ### Is it possible to detect a belief that a security will peak and then decline by analyzing American options pricing? Please forgive me if this is a dumb question. I know only the basics of options and their valuation, and this is a question I've wondered for some time without being able to find a satisfactory answer ... 1answer 45 views ### Interpolation for PDF from Cumulative Distribution How to interpolate PDF(Probability Distribution Functions) from CDF (without root finding method) ? Please tell the steps to do so. Thanks. 1answer 255 views ### Portfolio Management in R I’ve been looking around for a R-package that will allow me to track my stock portfolio - basically I would like to enter stocks that I own, track the trades I make, calculate my open position & ... 1answer 25 views ### What are pre and post stress capital? Fed papers make reference to a post-stress and pre-stress capital. I can't find definitions of these online, but from the context (below), it sounds like the post-stress capital is the estimated ... 2answers 51 views ### Trying to understand how to convert profit to home currency I'm looking at example 2 here: http://fxtrade.oanda.ca/analysis/profit-calculator/how ... 1answer 53 views ### Applying interest rate models for volaility rate To what extent may the interest rate models be applied for modeling implied volatity? The story: I was checking different stochastic option pricing models for being able to replicate implied ... 1answer 46 views ### What is wrong in my non-linear estimation sample code? I am trying to reproduce the code and plot you see here on pages 8,9 and 10 which was coded in MATLAB, but I'd like to convert it to R code. I believe I converted the MATLAB code below to R syntax ... 1answer 80 views ### Monte Carlo VaR assuming logistic distribution I have a Monte Carlo model which measures the Value at Risk (VaR) for given portfolio. I use the geometric brownian motion to model the prices. But let's say I assumed the returns of prices follow the ... 1answer 50 views ### How do I incorporate dividends into options pricing -Hey all, recently I encountered the necessity to incorporate dividends into options pricing. Lets say I have the following american put option: Initial price - 100, T-0.25, Volatility is 30%, Number ... 1answer 40 views ### Can CreditGrades CDS Pricing Model be used for financial firms? For Canadian banks, the CDS market is very illiquid and inactively traded. I want to get an estimate for the spread for a one year CDS on the Bank of Montreal. I was going to estimate this using the ... 1answer 44 views ### ARIMA Forecasting always converges? I read an article about arima forecasting and i said that before we forecast arima model, its stationarity has to be checked. If the model is stationary, it is clear that forecasting converges to ... 1answer 79 views ### What is more likely effect to call and put prices, respectively, if the stock price decreases by$1?

The current stock price is \$80.Call ,and ,put, options, with ,exercise ,prices, of$50 and 3 days to maturity are currently trading. What is more likely effect to call and put prices, respectively, ...
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### Testing day of the week effect

I am currently reading a bit about testing day of the weeks effects. I saw two different model specifications and wonder how to interpret the results. The first model type includes only 4 dummies for ...
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### How we decide the target price for stock

people giving intraday target price of particular share. Most of the times the target is achieved.I am still puzzled how the target price of stock for intraday can calculated. To elaborate my query ...
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### How do you calculate price of non-existant call option on commodity future

I've been stumped on this for awhile now. I'm trying to determine the price of a call option on a commodity futures contract that expires in the future. My issue is that while the future's contracts ...
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### Why some exchanges enforce that you send the total quantity (fill qty + open qty) when changing the order size?

Is it to protect against overfills? Can anyone explain in simple terms?
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### Aggregating growth rates

I'm working on a simple forecast model that uses Cumulative Annual Growth Rate (CAGR) to project future growth, and I've run into an apparent paradox. The model includes multiple lines of business ...
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### How to calculate returns and sharpe ratio for futures?

What is the industry standard way to calculate returns, which will be used to calculate sharpe ratio for e-mini S&P500?
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### Calculate short log return including fees

log long return is log((exitprice-fees)/entryprice) without leverage. log short return is the negative long return. So, from the above I would get short return = log(entryprice/(exitprice-fees)). ...
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### Segmented investment to yield same monthly return in each segment

Not an investment specialist, so please excuse the very basic math. Given a lump sum, I need to distribute this lump sum over (x) segments, each lasting (y) years (years can be different for each ...
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### Original Fundamental Accounting Data (Not Ratios)

Where do I get original fundamental accounting data from income statement, balance sheet and cash flow statement, like Sales/Revenue, Gross Income, EBIT, Operating Income, Cash & Short Term ...