All Questions
22,256
questions
0
votes
1
answer
149
views
Question about Pattern Day Trading
According to the FINRA, the rules permit a pattern day trader to trade up to four times the maintenance margin excess in the account as of the close of business of the previous day. So if you have \$...
0
votes
2
answers
222
views
Why not calculate Kelly using semivariance? As w Sortino
Kelly is calculated as mu / sigma^2. If we remove our highest performing returns from our calculations this actually increases our Kelly leverage, which does not make sense to me. A less profitable ...
- 11
1
vote
0
answers
59
views
How to estimate lambda from NAGARCH submodel in R
I am trying to estimate the model="fGARCH", submodel="NAGARCH" from the rugarch package in R.
However, when I am estimating the parameters, only omega, alpha, beta and gamma are ...
- 61
0
votes
0
answers
115
views
Intraday volatility pattern of Emini
I have the series of 1-min logarithmic returns of Emini future from 2007 to 2020
I calculated the standard deviation of each return at a fixed time of day and then I plotted the results (see image).
I ...
- 103
-1
votes
1
answer
179
views
Buying an Option on Futures or entering a Futures contract
Let's say I want to hedge my current position using a futures or future options. What is the use of buying a future option if I can enter into the futures contract at zero cost(at any time before the ...
- 11
1
vote
0
answers
103
views
Predicting smoothed returns
Due to the extremly low ratio of signal to noise in financial data, predicting raw returns is very difficult.
If we smooth out the price time series, say by an EWMA, and then calculate returns on this ...
- 405
0
votes
1
answer
295
views
Bachelier call option derivative w.r.t strike
I tried to take the partial derivative of the Bachelier call function w.r.t. strike price K (eqn 2.2 here), but my result is not lining up with what is shown on page 43 here.
- 11
0
votes
0
answers
101
views
Backtesting trading algos using simulated price instead of historical prices
I don't have any real experience in trading. I have a question in my mind for which I can't convince myself.
Why do we need real history price data to do back-testing?
In my mind, real data is only a ...
- 341
1
vote
0
answers
238
views
CVXOPT quadratic programming mean variance example
Trying to learn how to use CVXOPT to do quant finance optimization.
For the example given on page https://cvxopt.org/userguide/coneprog.html#quadratic-programming . I feel confused how this "S&...
- 41
1
vote
0
answers
47
views
Hedging Options assuming a non-constant Yield Curve
I have read most of Shreve's Stochastic Calculus for Finance II. In it, the author prices various option types assuming an interest rate that is constant with respect to time.
We can expand this model ...
- 437
1
vote
0
answers
77
views
How can one, from regular predictions of high & low prices of a security, their variances and error covariance, construct a trading strategy?
Suppose I have an algorithm that provides a prediction of the daily high and low of some security n periods in the future, a confidence interval for each of these predictions, and the correlation ...
- 111
0
votes
1
answer
589
views
Implied volatility and realized volatility
There are many articles and posts here claiming that the implied volatility is the expectation of future realized volatility. I don't understand. To begin with, isn't implied volatility homogeneous to ...
- 1
0
votes
0
answers
344
views
Sharpe ratio differs from Tradingview
I tried to backtest a simple strategy on TradingView, it made 6 trades with these results:
Now I want to calculate Sharpe ratio using definition provided by TradingView.
So, my daily returns(...
2
votes
2
answers
771
views
What exactly are the “bounds” in arbitrage bounds?
Wikipedia’s article on arbitrage bounds is loaded with jargon, and thus requires a lot of prerequisite knowledge to understand what should be a basic definition.
What exactly are the “bounds” in ...
- 161
0
votes
0
answers
100
views
Why autocall probabilities are decreasing with time
I am wondering why autocall probabilities decrease with observation dates. Intuitively, I understand that as time goes, if the spot has not breached the barrier, it would need more and more kind of ...
- 36
0
votes
1
answer
2k
views
Correlation between brownian motions and Cholesky decomposition [closed]
I know it is a pretty basic question (I'm new at Quantitative Finance), but what's the logic behind the Brownian Motions correlation?
The expression is:
Where is this formula coming from?
On the ...
- 51
1
vote
0
answers
254
views
Computing expectation of conditional characteristic function of the Heston model and variance process $V_t$
I'm using the following Heston model:
\begin{align}
\text{d}X_t &= -\dfrac{1}{2} V_t \text{d}t +\sqrt{V_t} \text{d}B_t, \\
\text{d}V_t &= -\lambda(V_t-\kappa) \text{d}t + \sigma \sqrt{V_t} \...
- 11
0
votes
1
answer
52
views
How does a company increase its free cash flow? [closed]
I am new to the finance space. I read the goal of a company (Philips) is to increase its free cash flow to above 2 billion euros by 2025.
I understand that free cash flow is the amount of disposable ...
- 101
2
votes
0
answers
122
views
Why is it called the No-Arbitrage Theorem if it’s really “arbitrage exists but only briefly”? [closed]
Why is it called the No-Arbitrage Theorem if it’s really “arbitrage exists but only briefly”? Is it just because all opportunities revert to equilibrium so fast that there’s no ultimate arbitrage, or ...
- 161
0
votes
1
answer
43
views
Reason for difference in share price between DDM and ERM? [closed]
I've calculated the Share Price of a fictional company both using the Dividend Discount Model (DDM) and the Earnings Recapitaliazation Model (ERM). However, the share prices differ significantly ...
- 3
2
votes
0
answers
173
views
GARCH Option Pricing in R
I am trying to code a GARCH option pricing model in R. I am still new to R so this does seem a bit complicated.
I want to estimate an asymmetric GARCH model as well as an EGARCH model. This I have ...
- 61
-1
votes
1
answer
571
views
Whos OIS rate? Is there only one?
I have a hard time understanding the OIS rate. My understanding is that this is the rate someone is willing to exchange federal funds rate over say 10 years to someone else. For example, some bank pay ...
- 307
6
votes
2
answers
681
views
Algorithm / source to calculate historical expiry dates of futures
I can find several source on this site where to find expiry dates of coming futures contracts.
I am looking for a (e.g. Python) algorithm or a data source where I can find historical dates when a ...
- 61
2
votes
1
answer
141
views
How much is considered as a fat tail for a ratio variable based on kurtosis?
I have two variables as below: inventory turnover (multiple to 100 already) and inventory day. And I have the kurtosis as below:
I do not know how to judge if there is any "fat-tail kurtosis&...
- 307
0
votes
1
answer
377
views
Mixed-integer programming approach for index tracking
Suppose you currently own a portfolio of eight stocks. Using the Markowitz model, you computed the optimal mean/variance portfolio. The weights of these two portfolios are shown in the following table:...
- 123
2
votes
0
answers
81
views
Empircal data analysis delta hedge error of Black-Scholes by Mark Davis
Regarding Mark Davis derivation of the delta-hedging error occuring in the black-scholes as a result of difference in realized volatility and implied volatily. The formula reads as follows:
$$ Z_t = \...
1
vote
0
answers
188
views
How to build Fama-French model factors SMB and HML to compare sustainable index to conventional benchmark?
My goal is to analyze and compare the performance between socially responsible indices and conventional ones. I am comparing for each region (Europe, UK, World, US) a sustainable index to a ...
- 11
0
votes
1
answer
210
views
VAR of Long & Short European Call Options
I have over 1000 simulated stock prices for an option that is expiring in 3 months. I have calculated the EU call option payoff of 1000 simulated prices and now I have 1000 simulated payoffs of call. ...
- 1
4
votes
1
answer
429
views
Weak solution of a SDE
$\text { Consider the } \operatorname{SDE} d X_{t}=\operatorname{sign}\left(X_{t}\right) d t+d B_{t} \text { on } 0 \leq t \leq T, \text { where } \operatorname{sign}(x)=1\\
\text { for } x>0 \text ...
2
votes
0
answers
74
views
Portfolios sorted by TED volatility
I was reading a paper titled "Betting against Beta" (link). The paper has five major propositions. The fourth proposition is that betas are compressed towards one when funding liquidity risk ...
- 121
6
votes
1
answer
493
views
Options On Earthquakes
As a financial innovation, the options market is introducing Options contracts based on
California Earthquakes. In your own words, discuss the following:
True or False?
“The sellers of Options on ...
- 61
6
votes
3
answers
9k
views
Why and when we should use the log variable?
Normally, I see finance papers use the real ratios but log regarding non-ratio variables. For example, some papers used log(asset) or log(1+firm age) or log GDP, but regarding the ratio, they use the ...
- 307
3
votes
1
answer
1k
views
Risk Neutral Valuation, Drifts and Calibration
Lets consider a pricing model like Vasicek.
Apparently, if you calibrate a derivatives pricing model to market prices this gives you risk neutral parameters. Its not clear to me as to WHY this will ...
- 2,492
0
votes
1
answer
128
views
FX hedged investments
I was reading FX hedged investments do not have an impact on the FX rate. For example, a Japanese fund buying US treasuries fully FX hedged. I understand the hedging is usually done through short term ...
- 351
0
votes
0
answers
64
views
Arbitrage optimal size model that accounts for slippage given a specific path?
I'm interested in any model that helps calculating the optimal size to maximize PnL given the liquidity of an asset (or the slippage that I would incurr per unit of asset traded).
For instance, let's ...
- 135
3
votes
2
answers
208
views
Change of measure for a stochastic process to be a martingale
$\text { Give a measure change so that } X_{t}=e^{B_{t}}\left(B_{t}-t / 2\right) \text { is a martingale, } 0 \leq t \leq T$
My attempt
Using Ito's lemma on $X_{t}$ we get:
$-\frac{e^{B t}}{2} d t+\...
- 383
2
votes
0
answers
107
views
Solving SDE Dubins-Schwarz Theorem
$\text{ Let } X_{t}=1+t+B_{t}, \text { and } T=\inf \left\{t: X_{t}=0\right\} . \text { Define } G(t)=\int_{0}^{t \wedge T} \frac{d s}{X_{s}}. $
$\text { Let }\
\tau_{t}=G^{-1}(t) \text { be the ...
- 383
0
votes
0
answers
53
views
Calculating Counterparty Exposure of a collateralized Portfolio
What could be counterparty exposure on a portfolio where:-
a. Client sells a put option on equity to us which is collateralized by corporate bond?
b. Client buys a put option on equity from us which ...
- 179
0
votes
2
answers
136
views
Hull on Futures: I am not able to understand this sentence
The usual rule chosen by the exchange is to pass the notice of intention to deliver on to the party with the oldest outstanding long position.
...
2
votes
0
answers
124
views
Should we include the industry variables when we control for year*industry fixed effects?
In panel data, we control for firms and years fixed effects even we also have some time-variant firm-level regressors.
I am wondering whether it also happens at the industry level. If it is the case, ...
- 307
2
votes
2
answers
266
views
Deciding (p,q) in garch and model test on empirical data
I'm currently working on a dataset containing data from the 29 January till the 29 July 2009. In the dataset I have prices of the S&P 500 index for all days. Furthermore, I have the implied ...
-2
votes
1
answer
142
views
Why continuously compounded interest a standard in finance? [closed]
Why is the "continuously compounded interest" the standard in finance? Many finance textbooks use the formula e^rt without justification.
The assumption that the interest frequency is ...
- 550
4
votes
0
answers
382
views
Bates Model on Quantlib
I am actively trying to price an option using bates model on Quantlib.However,when I input my volatility I find the same Black Prices with the basic Heston Model.I wanted to know if my code was right.
...
- 446
1
vote
1
answer
2k
views
Digital and binary put/call options
I'm looking for put-call parity for the call and put digital options, but I don't really know what is digital options and it's difference between ...
- 21
4
votes
0
answers
186
views
Bet sizing with regression predicitions?
Applying the kelly criterion for bet sizing is quite easy if we use a (binary) classification model (say to predict the sign of a price return) or other model where probabilities of classes are a ...
- 405
1
vote
0
answers
216
views
Changing order of integration on stochastic term in Vasicek [closed]
This question is in relation to the vasicek model, where i am trying to find the solution.
I have this term: $-\int_{t}^{T} \sigma \int_{t}^{s} e^{-\kappa(s-u)} d W(u) d s$
I need to change the ...
- 111
3
votes
0
answers
60
views
Interaction between raw position signals and portfolio optimisation methodologies [closed]
I'm trying to get my head around how the various aspects of constructing a final position generally interact and wonder whether anyone could expand on my (tentative) understanding currently.
As I see ...
- 31
0
votes
1
answer
140
views
option pricing formula for $S_{t}=S_{0}+\mu t+\sigma B_{t}$ where r = 0
I have been on this for hours and it's not getting me anywhere. Any help is so highly and deeply appreciated.
A call option with strike $K$ and expiration $T$ pays $C_{T}=\left(S_{T}-K\right)^{+}$ at ...
- 383
2
votes
0
answers
137
views
HNGARCH Option Pricing in R (How to loop)
I am having difficulties when using the HNGOption program in R.
The program will only run for 1 specific option price, meaning that I would have to manually insert strike price etc. and this would ...
- 61
2
votes
1
answer
306
views
How to approximate a delta using monte carlo methods and finite differences via Higham's book?
I'm currently taking a Mathematical Finance module at University and one of the recommended texts is “An Introduction to Financial Option Valuation: Mathematics, Stochastics and Computation” by D.J. ...
- 23