# All Questions

1k views

### Copula models and the distribution of the sum of random variables without Monte Carlo

There is a vast literature on copula modelling. Using copulas I can describe the joint law of two (and more) random variables $X$ and $Y$, i.e. $F_{X,Y}(x,y)$. Very often in risk management (credit ...
715 views

### Is there a copula that can estimate negative tail dependence?

I have encountered numerous copula estimators that can estimate time-invariant and time-varying linear and non-linear correlations on the interval $[-1,1]$, and these estimators are fully consistent ...
6k views

### How to create charts in WPF finance applications?

How to create charts for market data in WPF? Are there any charting controls provided by microsoft or you need to use only third party controls? Which are the popular third party charting controls ...
300 views

### Overview of software companies in the industry

I am looking for overview references on software companies that develop applications in the following domains: asset and portfolio management risk management derivatives pricing trading quant ...
9k views

### What do the terms in-sample and out-of-sample estimates mean in MVO?

How do the in-sample estimates and out-of-sample estimates I so often hear authors refer to in emperical analysis of MVO differ?
202 views

### Basel CVA VaR with R/WWR

In Basel III the CVA VaR “is restricted to changes in the counterparties’ credit spreads and does not model the sensitivity of CVA to changes in other market factors, such as changes in the value of ...
1k views

### Typical coefficients uses in square-root model for market impact

The square-root model is widely used to model equity market impact. It assumes that volatility, traded volume, total volume, and a spread cost are the drivers of slippage. Jim Gatheral has an ...
1k views

### Other means of calibrating Heston models

I understand that the simplest way of calibrating a Heston model for volatility surface is to use Monte-Carlo to simulate the vol and stock price trajectories and then use the observed price to do a ...
964 views

### How to avoid having negative volatility when applying Heston model?

When applying the Heston model to generate the sample volatility surface, some of the volatility value will be negative. I am just wondering what do practioners normally do with these negative value. ...
675 views

### The Basis of Using Technical Indicators as Inputs

In the process of my research I very often come across academic papers regarding modelling and trading strategies that in one way or another incorporate some technical indicators. For example in some ...
906 views

### What's the algorithm behind Excel's ACCRINT?

This question was originally posted on Stackoverflow: As part of the Formula.js project, I'm trying to re-implement Excel's ACCRINT function (in JavaScript, but the language should not matter). I've ...
979 views

### Delta of a Down and Out Call

I came across some graphs depicting the delta of a down-and-out call. They show that, if the risk free rate of return is 0, the delta is constant at 1. However, if the rate of return is for example ...
284 views

### Analyzing the angle between vector of weights and vector of returns in mean-variance optimization

I am using the paper "A Sharper Angle on Optimization" by Golts and Jones (2009) as a basis for my (minor) masters thesis in mathematical finance. The paper focuses on the mean-variance analysis of ...
1k views

### How to calculate Vomma of Black Scholes model

This source (PDF) gives the closed-form for vomma (or volga, i.e. the second derivative of price w.r.t. volatility) of the Black Scholes option pricing model as: ...
162 views

### How to simulate one-minute bars data from one-day bars?

I need to generate one-minute bars out of one-day bars to test the performance of an algorithm (speed, memory usage, etc). I don't need them to resemble real data, but they should be consistent with ...
989 views

### When hiring a quant, how can I protect my IP?

I am a one-man operation, and would like to hire a quant for around 4 weeks or work. I am worried that the person I hire might copy my data or the indicators that I have him work on. What have ...
267 views

### Sharpe ratio in days with no open positions

Should I include or not the days a strategy has no open positions (thus no returns) in the Sharpe ratio calculation?
545 views

### Alternative ways to understand time-varying comovement between two time-series?

I have been looking into ways to better understand how the dependencies/correlations/etc between two time series can vary over time. I first thought about using a Kalman/particle filter over a ...
2k views

### Squared and Absolute Returns

I've always wondered why do one use squared or absolute returns to determine if volatility modeling is required for the return series? We understand that there are various tests for its ...
520 views

### Choice of epsilon for numerical calculation of vega in binomial option pricing model

I have a binomial option-pricing model (I don't think the details of how its implemented are relevant). However, when I go to calculate vega, I am essentially running the model a second time with new ...
316 views

### Comparison of Brownian Motion Expected Drawdown and simulated results

Can anyone tell me whether results as predicted by Brownian Motion for a given mean and std, match what you get by measuring actual drawdown from simulated results over a number of iterations?
601 views

### Selecting timeframe for time series analysis

In technical analysis, we may use confluence of direction for 3 timeframes to roughly gauge bias of market now. Similarly, if we use time series forecasting methods to predict(say daily data-whether ...
3k views

### How do we use option price models (like Black-Scholes Model) to make money in practice?

In quantitative finance, we know we have a lot of option price models such as geometric Brownian motion model (Black-Scholes models), stochastic volatility model (Heston), jump diffusion models and so ...
140 views

### Volatility Index Weighting Scheme

Among the several weighting schemes used for constructing volatility indices, which ones are the best for forecasting (realized) volatility? I've constructed a volatility index for emerging markets ...
291 views

### Pricing swaptions

What are the approaches available to price a swaption (either European or American style)? So far it seems Black method is the only one used. Thanks!
6k views

### What are the advantages/disadvantages of these approaches to deal with volatility surface?

I would like to know if someone could provide a summarized view of the advantages and disadvantages of the approaches on the volatility surface issues, such as: Local vol Stochastic Vol ...
2k views

### CTD and bond futures

I am reading a chapter on bond futures in Fabozzi's book. It states that without CF (conversion factor) the CTD (cheapest to deliver) would be the bond with the longest maturity and highest coupon. ...
812 views

### Which prediction market model is efficient and simple to use?

For a college project I'm tasked with implementing prediction market. Which model of it I'd better choose? I want something useful and simple enough for other people to quickly understand and use. ...
645 views

### Asymmetric Volatility Modeling (Interpretation)

I am currently writing a paper on asymmetric volatility modeling of brent, gold, silver, wheat, soybean and corn from 1986-2012 and divided them into 4 sub-sample periods (i.e. 1986-1991, 1991-1997, ...
510 views

### Generate correlated random variables from Normal and Gamma distributions

I want to generate a random vector $z$ of dimension $k+m$ with some given correlation matrix $\Sigma$, such that the first $k$ elements of the vector are distributed normally and the last $m$ elements ...
677 views

### What data transformations to use in regression of credit spreads on equity prices?

Clearly there is a strong relationship between credit spreads and equity prices (both theoretically and empirically). But how would one go about formulating a regression which seeks to explain this ...
6k views

### What is the “leverage effect” for stocks?

I've read the so-called "leverage-effect" for stocks models the fact that if a company is leveraged, its volatility should increase as the stock price moves lower and closer to the level of debt. Can ...
349 views

### Value options when the currency’s risk free rate is negative?

How would you handle a negative interest rate in index/equity options valuation? An example would be negative rates for short term maturities for Swiss Frank (CHF).
16k views

### How to fit ARMA+GARCH Model In R?

I am currently working on ARMA+GARCH model using R. I am looking out for example which explain step by step explanation for fitting this model in R. I have time series which is stationary and I am ...
660 views

### BDT model implementation

I am looking for a nice and readable description of how to implement BDT model: $d log(r(t)) = [\theta(t)-\frac{\sigma'(t)}{\sigma(t)}log(r(t))]dt + \sigma(t) dW$. I assume I already have ...
1k views

### What is the clean price and dirty price of a risky bond?

Following up on this question: Yield of a risky bond, what is the definition of clean and dirty prices for a risky (defaultable, catastrophe, etc.) bond? I would think the dirty price should ...
137 views

I was looking at this video today: http://www.cmegroup.com/education/interactive/webinars-archived/implied-price-functionality.html on implied pricing. And am aware that implied orders/pricing ...
5k views

### Why is short term implied volatility typically higher?

Why do short term implieds move more than long term?
737 views

### Regime switching in mean reverting stochastic process

Let you have a mean reverting stochastic process with a statistically significant autocorrelation coefficient; let it looks like you can well model it using an $ARMA(p,q)$. This time series could be ...
244 views

### Inflation swap liquidity versus inflation-linked bonds

In which markets are inflation swaps considered liquid enough to be the primary instrument for measuring market inflation expectations (compared to say, inflation-linked bonds)? Are there specific ...
2k views

### What is the mean and the standard deviation for Geometric Ornstein-Uhlenbeck Process?

I am uncertain as to how to calculate the mean and variance of the following Geometric Ornstein-Uhlenbeck process. $$d X(t) = a ( L - X_t ) dt + V X_t dW_t$$ Is anyone able to calculate the mean ...
6k views

### Early execise of American Call on Non-Dividend paying stock.

Let us consider an American call option with strike price K and the time to maturity be T. Assume that the underlying stock does not pay any dividend. Let the price of this call option is C$^a$ today ...
710 views

### Rubinsteins Implied Binomial Tree - how to calculate the cumulative returns

I am working on Rubinsteins IBT and use the following paper to implement this into excel: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=541744 the original paper can be found here: ...
93 views

I found this comment in a book I bought about risk management: Risk Management in Banking by Joel Bessis. This is the well-known rule that states that the sum of individual risks is less than ...
726 views

### Yield of a risky bond

When working with risky bonds, i.e. corporate bonds, what is usually defined as the yield of such a bond? Is it the yield calculated as if the bond was riskless, or is it calculated by properly taking ...
313 views

### BS and delta hedging questions

I have two related questions concerning Black Scholes and delta hedging. I thought about this two questions, but I could not come up with an answer, so maybe you guys & girls can help me: If an ...
685 views

### Optimizing a currency only portfolio with negative weights

I am testing various optimization methods for a currency-only portfolio. I have a vector of expected returns for the major developed currencies vs. the USD each week (based on a proprietary model). I ...
3k views

### Fastest algorithm for calculating retrospective maximum drawdown

Simple question - what would be the fastest algorithm for calculating retrospective maximum drawdown ? I've found some interesting talks but I was wondering what people thought of this question here. ...