# All Questions

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 ...
194 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 ...
546 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?
79 views

48 views

### stochastic log utility maximization problem, portfolio optimal strategy

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 ...