All Questions

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Fx Firm market making

I've been doing market making on forex using the last look feature so far. Now we are moving to do on firm making, but I'm kind of lost. To do firm making we need to post resting orders (currenex ...
134 views

Option Chain Implied Volatility Calculation

I have the following EOD options data for the SPY containing IV data for each strike. ...
79 views

Should a strategy backtested against three years of tick data continue to produce positive results?

Let's say we have a Binary Options 5-minute trading strategy that relies on multiple indicators and exploits price reversals in currency pairs. Now let's say there is a combination of inputs for the ...
204 views

Long Forward Rate Agreement, short Eurodollar futures

For this question If you are long a FRA and short a ED future with the same fixing dates, do you have positive convexity or negative convexity? The answer is positive convexity, because a ...
47 views

Value at risk in dollars vs. log returns

I have a quick question about this remark in Tsay's book "Analysis of Financial Time Series" (3rd edition). He says that $$\text{dollar VaR} = \text{Value} \times \text{log return VaR}$$ and that ...
67 views

PPPN: premium with real market data

A few days ago, I posted a question about PPPN's (partially principal protected notes), which can be found here:PPPN: participation rate, stocks and premium. A PPPN in short is a structured product ...
86 views

How to get real interest rate from Nominal spot rates?

I have the nominal spot rates. Based on the Fisher equation , how to get the real interest rate ($r$) and the "expected inflation" ($\pi$) ?
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129 views

difference between caplet and call

I wanted to know the difference between a caplet and a call. In my course (Interest rate models and curves) , we said that a caplet is a call option. Is it really true? Thanks
109 views

How is fundamental data taken into account when modelling stock prices with a Geometric Brownian Motion?

I have a basic understanding of the principles behind Geometric Brownian Motion and how it can be used to model stock prices, however I am confused as to how it is used in practice. In particular, how ...
70 views

Where can I find Value at Risk & Expected shortfall for ETF's?

I'm struggling to find VaR & ES data for ETF's on websites such yahoo finance & Morningstar. Where can I find this data? Thanks,
112 views

How to price touch options using quantlib?

I am new to quantlib and I want use it to to price a touch option (single/double). I searched on google for example code but I could not find anything. Hence, I am ...
46 views

Stressing the going up of LIBOR - Which balance sheet variables to stress?

Analysts expect the LIBOR to rise in the next two years. Hence, all companies that have foreign currency loans will face problems. I am preparing a study on this topic, but data is an extreme issue. ...
210 views

Swap Rate vs Par Rate

If we calculate the par rate for n periods, why does the nth swap rate equal the par rate? A mathematical formulation would be helpful apart from an intuitive answer. Edit: Example:- A 2 year ...
129 views

What is wrong with this argument?

Futures trading in stock index gives leverage. Leverage cuts both ways. It can give you huge pct gains or wipe you out. Typically stock index futures for the major markets have limited daily pct ...
98 views

Sharpe Ratio versus Cumulative Returns

I was asked whether Sharpe Ratio was a better measure than Cumulative Returns, in the context of hedge funds. To me, personally, Sharpe Ratio is a more important measure. By definition, it tells us ...
133 views

How are we underestimating liquidity risk?

Malz explains that marking to model can underestimate liquidity risk. From his example, I don't see it. I can see us underestimating market risk because we are using an incorrect price. Why does a ...
106 views

Why is Vega meaningful only for options which have single-signed gammas

I have been reading Wilmott Frequently Asked Question book and this was mentioned that Vega is not useful when measuring risk for options that have gammas changing signs such as Digital option or ...
266 views

Calculating log-returns across multiple securities and time

I've been getting very confused on the topic of calculating returns. To get cumulative returns in time, log-returns are used, but apparently log-returns aren't used across different securities at a ...
126 views

how negative rates (mr and rf) affect CAPM

I don't understand how the negative rates factor into this and what it means in the market ...
61 views

Immunization: Whats the best way to hedge my short interest rate exposure?

What's the best way to hedge a portfolio against a rise in rates? Portfolio: long bonds different maturities. a) parallel shift b) convex shift (short and long term rise more than mid term) How is ...
116 views

Does it make sense to calculate Fama-French betas of a single stock?

Or should Fama-French only be applied to portfolios?
94 views

Credit exposure of a long CDS

According to Gregory, the exposure for. the long party of a credit default swap increases in its early years and then skyrockets when there is a credit event of the reference entity. I would have ...
48 views

Why can't we use Finite Differences with non-parabolic PDEs?

The title of the question says it all. Why can we only apply the method to parabolic PDEs like the heat equation, and not to ordinary PDEs?
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How to arrive at expectation of negative utility function via Taylor series expansion

I'm attempting to follow an author's steps in an argument and having trouble seeing how Taylor series expansion can be applied to give the stated result. The scenario is as follows. The mid price ...
79 views

Investor choice problem

Guys I'm stuck with a problem... Consider the portfolio choice problem of a risk-averse individual with a strictly increasing utility function. There is a single risky asset, and a risk free asset. ...