# All Questions

197 views

### Good criteria to sort state-space $\beta_{t}$ according to Kalman filter output

Let the usual state-space linear model (without constant term for the sake of simplicity): $y_{t}=\beta_{t} X_{t}+\epsilon_{t}$ If we use Gaussian Kalman filter to estimate $\beta_{t}$ we get ...
269 views

I am trying to help a friend with her thesis on Counterparty Credit Risk where she intends to have a somewhat lengthy treatment on Credit Valuation Adjustment (CVA). Specifically I am looking to help ...
106 views

### Do some option pricing models allow for misspecification and what does it mean?

This is to some extent a theoretical question and maybe we can work together to produce some input and output. Diverse option pricing models are reported to be misspecified in various studies. One ...
130 views

### Is there such a thing as “sell-off risk” in bond funds?

Popular yet generally academically-grounded commentators such as Annette Thau and Larry Swedroe have claimed that there is the possibility for "sell-off risk" in bond funds. By this they apparently ...
195 views

### Dual curves and short rate calibration

When I calibrate a short rate model to market swaption vols, what curve am I getting when I plug in the calibrated parameters into the analytical formulae (assuming they exist for the model I'm ...
2k views

### Models for simulating FX movements

My goal is to develop a model to simulate long term FX movements. (I am not sure if long term makes any difference, but if it does I am more interested in long term fx movements) These Monte Carlo ...
74 views

### FRA-Strategy: Make 3-month and 1-year Excess returns comparable

I am trying to analyze an investment strategy that tries to exploit the empirical difference between forward interest rates and realized spot rates. I am using FRAs to capture the difference. I am ...
328 views

### Any one know how to implement the Heston and Rouwenhorst country-sector effects regression in R?

Heston and Rouwenhorst (1994) devised an empirical estimation strategy to decompose stock returns into three components: a pure industry effect, a pure country effect, and a world-factor return. ...
135 views

### How to simulate a Geometric Binomial Process with state/tie dependent increments?

I want to simulate a geometric binomial process with state/time dependent increments. So the model is given by \begin{align}R_t=\frac{X_t}{X_{t-1}}\end{align} \begin{align}P(R_t=u)=p(X_{t-1},t) ...
86 views

### Portfolio insurance with a coherent risk measure (CVaR)

I would like to analysis of portfolio insurance under a coherent risk-measure method (CVaR), How can I achieve that? Is there a way to turn the problem into a linear programming problem? or to ...
95 views

### What does it mean to adjust for short-run liquidity in finding risk-free rate of return

Risk-free rate of return should equal the expected long-run growth rate of the economy with an adjustment for short-run liquidity. What is meant by the last phrase, "adjustment for short-run ...
800 views

### Philips-Ouliaris test for cointegration

I'm trying to implement cointegration tests using the R urca package. I've figured out the Johansen test (ca.jo), but I'm having trouble with the Philips-Ouliaris test (ca.po). I have two questions: ...
70 views

### Is there an appropriate sequence to tests during model diagnosis?

How should one order (sequence) the following tests? Stationarity test Johansen cointegration test Normality/Histogram test Autocorrelation test Heteroskedasticity test Multicollinearity test ...
99 views

### Benchmarking risk

Given the portfolio return $R$ and the benchmark return $B$, I want to define a risk indicator, measuring the ability to beat the benchmark ($R>B$), given the downside risk taken; the latter not ...
780 views

### How to correctly construct a value- and equally weighted portfolio consisting of property-types?

A problem of which I couldn’t find the answer on the forum is about the construction of equally-weighted and value-weighted portfolio. I want to compute the equally-weighted property-type portfolio ...
144 views

### What does negative gamma mean in APGARCH model?

I got a gamma of -0.1321677. ...
659 views

### Does the geometric Ornstein-Uhlenbeck process have stationary variance?

I know that the long run variance of the standard OU process is $\lim_{s\rightarrow \infty}\mbox{Var}(P_{t+s}|P_t) = \frac{\sigma^2}{2\theta}$ I'm using the geometric version of the process. I ...
235 views

### EUR/PLN and EUR/USD delta-term-vol surface quoting convension

does anyone know for sure what is the FX market convension to quote delta-term pairs for EUR/PLN, for EUR/USD. I know that for EUR/PLN it should be delta p.a forward, for EUR/USD it should be delta ...
548 views

### Yield Curve Volatility

Let you have several issuers, and let each issuer have its yield curve built up with liquid plain vanilla fixed rate bonds. Each yield curve has its slope and its curvature, and they obviously change ...
82 views

### Changes to option valuation for dollar-pegged underlying

In Russia, options on futures on the RTS index are priced in points instead of currency, with points being directly related to the value of the US dollar such that, for example, if the dollar rises, ...
189 views

### Measure change in a bond option problem

This is not a homework or assignment exercise. I'm trying to evaluate $\displaystyle \ \ I := E_\beta \big[\frac{1}{\beta(T_0)} K \mathbf{1}_{\{B(T_0,T_1) > K\}}\big]$, where $\beta$ is the ...
111 views

### Combining Mulitple Forecasts? Budged Constraints?

I'm hoping that someone can lend a hand. I have been reading various papers on how to combine multiple forecast time series. The main paper is Granger and Bates 1969. The suggestion here is that there ...
189 views

### Probability Density of Returns of Bonus Certificates

Could anyone please help me with the following? I need to generate a histogram (resp. probability density) of returns of a bonus-certificate. A bonus-certificate can be replicated by an underlying ...
143 views

### How is a quanto priced?

How would one price a derivative denominated in EUR that pays in USD?
81 views

Why does dividing daily returns by daily range eliminates fat tails and results in an (almost) gaussian distribution? And how could that distribution be exploited to enter trades?
112 views

### Difference between kappa and delta in mixed-effects model

(This question is a crosspost from Cross Validated) I have a following stochastic model describing evolution of a process (Y) in space and time. Ds and Dt are domain in space (2D with x and y axes) ...
190 views

### Stochastic discount factor (aka deflator or pricing kernel) and class D processes

When (under what assumptions on the model) does a Stochastic Discount Factor need to be of Class D? What would be the implications if it was not? Is it connected to one of the no-arbitrage notions?
It's not too long since Berkshire Hathaway got its 10-year warrants in Bank of America alongside its \$5 billion purchase of preferred stock. At the time I saw some discussion about the value of ... 0answers 116 views ### How to Quantify Headwinds What are some of the best ways to effectively measure headwinds for an open ended fund? Headwinds in this case refers to the amount of volatility contributed by a factor or a set of factors to a ... 0answers 146 views ### How to find the upper bound of a digital option given some market data? Given the price of a call equals to 5 with Strike 100, please find the upper bound (sup) of the digital option with strike 105. I am not sure about the solution, but I write the condition like this, ... 0answers 87 views ### Good Environment, Social, and Governance Indicators to correlate with financial performance of PE I am trying to see if there is a correlation between the Environment, Social, and Governance (ESG) performance and the financial performance of Private Equity (PE) funds. Are there any suggestions ... 0answers 172 views ### What is the highest frequency greek for options on futures on bonds? I'm considering exchange traded options of futures on bonds. Options on bond futures are usually American, thus the Black model is out of question. Which is the most imporatant Greek with respect to ... 0answers 551 views ### What is an appropriate hedge ratio for hedging a credit instrument with equity of the same issuer? Given a bond and a stock issued by the same issuer, what is the appropriate ratio of bond-to-stock one should hold in order to minimize the specific risk to that issuer? Equivalently, what is the ... 0answers 155 views ### Optimal stop-loss reinsurance What are some methods for optimizing stop-loss reinsurance? I've found an article on the minimization of the variance. I also know about the method of average-at-range. Can we apply a method for ... 0answers 131 views ### Calculating stock weight for SEC13F filers I am trying to evaluate weight of stocks in portfolio for an investor. For this purpose I use SEC13F filings for particular quarters and historical prices from Yahoo. There are stocks in portfolio ... 0answers 271 views ### TA/Pattern algorithm analysis I have been building a momentum pattern detection algo (essentially involves fitting curves in overlapping windows at different timeframes) and wanted to see if anyone has done/seen similar work. I ... 0answers 212 views ### Tian third moment-matching tree with smoothing - implementation I was wondering if someone has an implementation of the Tian third moment-matching tree (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1030143) with smoothing in code (e.g. c++, vba, c#, etc.)? ... 0answers 276 views ### What does T statistics of Information Coefficient indicate? Hi I am looking for a clear explanation of T statistics concept. Especially in quantitative equity portfolio management context, what does T statistics of monthly Information Coefficient for one ... 0answers 25 views ### Using R with princomp to create hedge baskets I am experimenting to try to find better ways to hedge some of our equity portfolios. It's easy enough to use R to get a PCA breakdown of exposure for a portfolio but I can't figure out how to then ... 0answers 21 views ### “Risk” Factor vs Double Sorts With regards to a cross-sectional asset pricing (stocks) study, I am testing if one variable can explain another. One common approach to do this, is to use the double-sorting portfolio technique (sort ... 0answers 27 views ###$0$-beta stock and diversification If we invest$w$in the market portfolio and$1 - w$in the risk-free asset, and observe a$0$-beta asset with expected return greater than the return on the risk-free asset, how can this be used in ... 0answers 28 views ### Is$(1,0,0,0,…,0)$a legitimate dividend stream? A book I am reading defines a positive linear functional as a "price functional" from a set of adapted processes to the real numbers. Specifically, it defines a "consistent price functional" as one ... 0answers 22 views ### Bond Duration with Bond portfolio returns if I have given CRSP bond portfolio returns with different maturities (1m-12m, etc), how is it possible to compute the Future price and the duration? Beside that I do also have the ... 0answers 19 views ### How to request current Interactive Broker positions using VBnet/Activex and the API? I'm trying to use the reqPositions() method but it doesn't have an event handler associated with it that it references in the API. 0answers 37 views ### Implied volatility I have a question about calculating the implied vol. Assuming the implied vol that a option will expire in 1 day is$\sigma_1$, and the implied vol that the option will expire in 2 days is$\sigma_2$. ... 0answers 37 views ### Can a momentum strategy be cast as a multilinear regression model? Disclaimer: the question is similar to Can momentum strategies be quantitative in nature? and (to an extent) What is the expected return I should use for the momentum strategy in MV optimization ... 0answers 18 views ### Pricing with-profit/smoothed bonus annuity using Black-Scholes Would this be possible? Subsequently, would the pricing of such an annuity be somewhat similar to pricing a lookback option? 0answers 31 views ### Arrow-Debreu Equilibrium Pricing I have this problem in asset pricing that I don't know how to solve. Here it is: Consider an economy with a complete set of Securities and$N$states of the world Tomorrow. Assume that there are two ... 0answers 82 views ### Numerical Methods for Merton Model The stochastic differential equation for an underlying with jumps in Merton model is: $$d{{S}_{t}}=\mu \,{{S}_{t}}dt+\sigma \,{{S}_{t}}\,d{{W}_{t}}^{P}+(J-1){{S}_{t}}d{{q}_{t}}$$ where$t \quad\,\,\, ...
Looking for a help with explaining some steps of the logarithmic utility maximization problem where given market with a zero safe rate and risky asset with dynamics  \frac{dS_{t}}{S_{t}}=\mu B_t ...