# All Questions

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### Realized Volatility: errors correlation

When using Realized Volatility (sum of squared intraday returns) to estimate volatility, following the model: $$r_t = \sigma_t \epsilon_t$$ where $\sigma^2_t$ is the volatility at time $t$ and ...
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### Underlying mechanics of paired class shares ETFs

I came across an interesting pair of VIX ETPs, VXUP and VXDN. This new product referred to as "paired class shares" ETFs are quite different from traditional ETPs. Some interesting highlights from the ...
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I'm reading Uwe Wystup's "FX Options and Structured Products" to understand Vanna-Volga pricing, which, in his book Chapter $\S3.1$ is called "The Trader's Rule of Thumb". I generally got the idea ...
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### How to calculate beta against a multi-asset benchmark

Lets say that I have a benchmark, $BM$ that consists of 3 assets- 30% asset $A$, 30% asset $B$ and 40% asset $C$. Now, lets further assume I am trying to construct a portfolio that uses $BM$ as its ...
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### Leveraged ETFs Holding Period; Compare LETF with DITM

Why the "standard recommendation" is that LETFs are only for short periods (< 1 day) while their performance charts indicate that the leveraging is retained once the period EXCEEDs several days? ...
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### How does a stop loss affect the P/L of a trader

In his book 'Dynamic Hedging', Nassim Taleb writes: Problem: A trader is given a stop loss of 100,000 in any given month (he would have to close his books and go home until the end of the month). ...
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### johansen cointegration test eviews interpreation

I am not sure whether i am interpreting the cointegration test correct. This is the test result : Because of the probability of the test i understand that my series are cointegrated of order 2. ...
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### How do you calculate the asset drift rate in the Merton model? (used in N(-d2))

Can I replace it with the internal rentability rate? I only have the financial statements and some market data, but I can't find the expected returns anywhere. The goal is to calculate the probability ...
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### Compare performance buy-and-hold strategies after stock-split

QUESTION: How should I analyze the statistical significance of the difference between two buy-and-hold strategies (or the relative performance) when the samples are not independent? Background: I ...
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### How to create a basket of currency pairs with the lowest correlation in R?

My strategy is designed to buy and sell all assets of a universe and rebalance periodically. It goes either long or short. To limit risk exposure to a single currency I would like the assets in the ...
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### Can Yahoo Finance API work for non-US markets?

I am trying to fetch ticker prices and historical prices for major Asian exchanges (HKSE, SGX etc). I am trying to use yahoo finance API, but it is not returning any data for even SingTel, which is a ...
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### High frequency price forecast model ARMA GARCH or another?

Can you reccomend model for high frequency data (1 second and less) (returns and volatility forecasting)? Most papers use ARMA, GARCH etc in 1 minute and lower time frame. PROBLEM ARMA does not know ...
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### After finding the pair, what next?

Had a question on how do I go about doing pairs trading. I have found some cointegrated stocks. Now the question is what next. From what I understand if two pairs are cointegrated, the distance ...
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### Use of implied vol averages for expected underlying returns

When computing a single implied volatility value for a particular asset for use in cross sectional regression models, using daily end of day data. There are a few methodologies I've seen to used do ...
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### Test for NonLinearity

I am doing a regression, returns of stocks(cross section of stock returns at a given time) against some fundamental factors. And look at the residuals to get a normalized view when trying to rank the ...
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### Choosing an optimal dependent variable, regression/model fitting

When I select a certain target variable and model that with either linear regression or some other technique, say naive bayes, I hope to finally arrive at a model which has statistical significance, ...
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### How can I convert Yahoo Ticker Symbols into ISIN Codes?

I have a list of all Yahoo Ticker Symbols and I want to convert them into ISIN Codes. I have been researching and found out that finance.yahoo in the US does not ...
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### Multinomial Representation Theorem

In the context of pricing models, the Binomial Representation Theorem (BRT) tells us if we have a binomial price process $S$ that is a $\mathbb{Q}$-martingale (MG), and any other $\mathbb{Q}$-MG $M$, ...
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### Volume or Volatility?

I've recently been given a project which came with some documentation. In this documentation is a bullet point that reads: Liquidity Risk in Equity, Credit and Vol I'm unsure as to whether vol is ...
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### Regressing NYSE returns: Lagged intercept term & efficient market hypothesis

By performing the following OLS time series regression, $y_t$ = $\beta_0$ + $\beta_1$*$y_{t-1}$ + $\beta_0$*$y_{t-1}^2$ + $\epsilon$ I cannot reject the null hypothesis that b1=b2=0. However, ...
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### Cointegration and variance of time series

Given that $X_t , Y_t$ are two cointegrated random processes, what can we say about the relationship between variance of the two increments $var(X_{t+h}-X_t)$ , $var(Y_{t+h}-Y_t)$ for a given ...
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### Term Structure and short rates

If I have a term structure/yield curve given by: $$f(t, T) = f(0, T) + σ^2t(T − \frac{t}{2}) + σB_t$$ and want to find the short/spot rate $r_t$, is this simply: f(t,t) = f(0,t) + ...
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### Simulated Price Data via Harmonic Logarithmic Walks?

Hi I came up with this equation last week and was wondering if: 1) There was already a name for this mathematical process. If so, where I might find more information. 2) Also, I am not adept at ...
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### continuous dividend yield - european option

Can someone help with following task? You need to use a 5-period forward binomial model to price options, which is constructed by specifying the up and down moves as follows: u = exp {(r − δ) · h + ...