# All Questions

104 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 ...
268 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 ...
62 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?
95 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 ...
49 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?
63 views

52 views

### 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. ...
35 views

### Expected value of bivariate lognormal spread

I don´t know how to derivate the Expected Value for the following problem: Suppose that the random vector (S_1, S_2) has a bivariate lognormal distribution with ...
151 views

### What is the difference between market equilibrium and market efficiency? equilibrium implies efficiency?

The market efficiency hypothesis means securities are traded at their fair price. If the market is at the equilibrium, does it mean the market is efficiency? If equilibrium cannot implies efficiency,...
20 views

### Where do Over-allotment (Greenshoe) option shares come from?

I'm just wondering, if following an IPO the share price goes up and the underwriter calls the option, where do those extra 15% shares come from? Does the company have to issue more stock to cover the ...
65 views

### How can I compare two mutual funds' performance with a sparse set of data?

I want to compare the performance of two mutual funds. The only data I have is annual returns for the past 7 years. So I have 7 observations for Fund 1 and 7 observations for Fund 2. In addition, I ...
219 views

148 views

### Delta and gamma neutral

A financial institution currently has a portfolio with delta of 450 and gamma of 6,000. A traded option is available with a delta of 0.6 and a gamma of 1.5. How could the portfolio be made both delta ...
311 views

### Calculate CVaR for a portfolio

I would like to calculate the Conditional Value at Risk for a portfolio. To be honest, I'm trying for a few days to find an example to calculate for an entire portfolio, not just for one security and ...
314 views

### Difference between Risk avoidance and Risk transfer

I was hoping some could explain the two terms namely, risk avoidance and risk transfer. Also, can a risk be avoided by transferring it?