# All Questions

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### 3 Factor HJM model, do these factors have an economic meaning?

In the HJM model, in case we have 3 factors, do these factors have an economic meaning at all ?
195 views

### Zakamouline Optimal Hedging of Options with Transaction Costs

I've read that the Zakamouline method suggests the best optimal hedging of options when taking transaction costs into account. I've read the article but am having difficulty understanding it well ...
3k views

### Delta Neutral / Gamma Neutral Positions

I've been trying to find out more about options positions which are both delta neutral and gamma neutral--created with some kind of calendar spread. Supposedly, such a trade will be perfectly hedged ...
241 views

### How to backtest the VaR model?

I have a sorted historical P&L vector of 250 days and say, I want to calculate the 90% VaR on this distribution. I will look for the 225 element (90% * 250 = 225) and this will be my Value at Risk....
2k views

### An alternative to the Gaussian distribution to describe/fit market stock returns

After the financial crisis in 2008, many people (including me) don't really believe that stock returns can be described in terms of the normal distribution (Gaussian distribution). But besides the ...
324 views

### Copula Value At Risk

Let's suppose I have two asset in my portfolio. I want to compute Copula Value At Risk. Can you help me? This is the code I wrote: ...
305 views

### Practical implementation of Least Squares Monte Carlo (tweaks and pittfalls)

The Longstaff-Schwartz LSM approach is nowadays ubiquitous(at least in the academic literature) in pricing path dependant derivatives. Up to now I have mostly worked with lattice methods. My ...
1k views

### Markit PMI vs ISM PMI

What is the difference between the Markit Manufacturing PMI and the ISM Manufacturing PMI? The monthly number differs a lot, my understanding is that they are trying to indicate the same thing.
2k views

### Can the duration of a bond be greater than Time to Maturity

In the case of a vanilla bond I know that the duration will be less than the time to maturity. But I am observing that for a non-vanilla bond, the duration is greater than time to maturity. Can ...
192 views

### How to obtain specific information on FX trading systems?

I'm trying to compare trading venues using a quantitative product selection matrix (and eventually software vendors using a different matrix specifically for vendors), and I was wondering if anyone ...
121 views

### Linear-Boundary Crossing Problem for Brownian Motion

This is a question I came across while reading: $W = (W_t)_{t\geq{0}}$ is a standard BM. Let $\mu\in \mathbb{R}$, and let $\tau_{a}^{\mu}$ = $\inf(t>0;W_t = a + \mu{t})$ be the first passage time ...
86 views

### Fitting a sigmoid function to incomplete, structured, data

I have an incomplete data set that looks like this: and I believe that it will continue to form a sigmoid-like shape. How can fit a sigmoid curve to this data given my assumption about what the ...
75 views

### Sampling and/or asymptotic distribution of a function

Assume we have the following function: $$f(p) = \frac{1}{(1-p)d}\ln\left(\frac{1}{T}\sum_{t=1}^{T}\left[\frac{1+X_t}{1+Y_t} \right]^{1-p} \right)$$ where $d$ is a constant $T$ is a constant $X_t$ ...
2k views

### Free and tested optimization, statistical and visualization packages for C#

I am about to implement a variation of the LIBOR-Market-Model (complete with Least-Square-Montecarlo, calibration, pricing etc.) and decided to implement it in C#. The implementation will involve ...
518 views

### Pre-trade evaluation and risk assessment of option trading strategies (in market practice)

When a trader gets conclusion of the volatility is being underestimated (via volatility cone or some other technology), actually there are multiple ways for his trading. (Let's assume the underlying ...
186 views

### Beta and the Assumption of IID Returns

For two stocks that are independent and identically distributed (iid), do they have the same beta? Does the number of data points matter?
240 views

### How to calculate modeled asset volatility by industry factor?

Currently I am working with huge data frame which consists of a lot firms. For each firm in my sample I calculated asset volatility ( I am using Merton default probability model, so I have used 2 ...
70 views

### Forecasting amount of slippage in executing option spreads

Is there a good quantitative model to estimate how much slippage is required to execute a particular option spread trade? For example, let's say you want to execute an Iron Condor. Given X, Y, Z ...
1k views

### Asset-or-nothing Option Valuation in the Black and Scholes model

In standard Black-Scholes Model, compute the price of an asset-or-nothing put and asset-or-nothing call options. Write down the put-call parity relation between the asset-or-nothing call and put ...
81 views

### The concept of an incomplete market

While skeeming the relevant literature and web-sites I noticed that mostly the concept of the incomplete market is reduced to the following statement "A market is incomplete if there are more ...
438 views

### Algorithmical replication of a profit and loss function using different options

I often see questions like "Given this payoff graph (example below), construct a portfolio that replicates it." I want to know if there is an efficient method/algorithm to find the individual pieces ...
189 views

### Effect of interest rate on options prices

This might be another basic derivatives question. When interest rate rises, stock prices generally fall. Assuming an option's underlying is a stock, this should lower the option's price as well. ...
2k views

### What is the necessary level of Econometrics-Know-How for a quant

It seems quants increasingly use econometric models at work. As someone who has sold his soul to probability theory and stochastical analysis I would like to catch up. What are the econometric tools ...
185 views

### Best practice approach for calculating the PE-ratio

I am trying to calculate the historical PE ratios of a stock, but which date should I use to get the stock price in calculating the PE ratio? My current approach is to use the stock price of a day ...
657 views

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### Derivation of variance of Zhou (1996) volatility estimator

Does anyone know how to derive the Variance of Bin Zhou's volatility estimator (Theorem 1) in 'High-Frequency Data and Volatility in Foreign-Exchange Rates' (1996) Zhou 1996 Any help would be ...
194 views

### Minimum Variance Hedge Ratio in Binomial Framework

In order to find the minimum variance hedge ratio when holding a portfolio of vanilla call options and hedging with stock, you can do an OLS regression. In a binomial model framework, given ...
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I'm studying for a test and am stuck on this practice question: With interest rates equal to 0, two different stocks $S_1$ and $S_2$, both valued at \$1 today, can be worth \$2 or \$0.50 at some ... 2answers 265 views ### How to Calculate a Monte Calo VaR estimation error I'm performing a Monte Carlo to calculate value at risk (with a 3 dimension risk factor) Now, I would like to calculate the error of the estimation of the VaR with respect to the number of simulations ... 1answer 185 views ### what was the quant role in the 2008 crash? this is a complex topic that interests me, have researched myself, & is debated heavily in the media and there is lots of writing, even entire books/documentaries. maybe somewhat surprisingly, ... 0answers 226 views ### How are quants able to verify whether their calculated prices are any good This question is related to the discussion on Model Validation Criteria However it appeard to be very high level to me and I would like to go more into detail. Not working at a pricing desk the ... 1answer 74 views ### How does buying back stock affect a company's credit spread? How does buying back stock affect a company's credit spread? Would it cause it to get smaller? Any clarification would be appreciated. 2answers 600 views ### Price an option and find a replicating portfolio I got stuck on the following question whilst learning about basic option pricing. A stock is valued at \$75 today. An option will pay \$1 the first time the stock reaches \$100 in value, which it ...

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