17
votes
6answers
2k views

How random are financial data series?

Pseudorandom number generators are often tested using e.g. a test suite like Diehard tests or Dieharder. If one would run these tests e.g. on stock market time series or other financial data, would ...
5
votes
3answers
294 views

How does order fulfillment proceed with larger orders?

If a large sell order hits many bids from the book, is the order filled at once? Or is it filled one bid at a time with a chance for any new orders to come in between each trade?
11
votes
5answers
2k views

How can I quantitatively test the validity of momentum indicators?

I am learning about quantitative finance, and I am struck by how different it is from the techniques that make it into magazines and TV, particularly technical analysis. Specifically, if they say an ...
10
votes
3answers
5k views

What is Ito's lemma used for in quantitative finance?

Further to my question asked here: prior post and which left some points unanswered, I have reformulated the question as follows: What is Ito's lemma used for in quantitative finance? and when is it ...
7
votes
1answer
409 views

Do people use unbounded interest rate models, and what alternatives exist?

A simple interest rate model in discrete time is the autoregressive model, $$ I_{n+1} = \alpha I_n+w_n $$ where $\alpha\in [0,1)$ and $w_n\geq 0$ are i.i.d. random variables. When working with ruin ...
-1
votes
1answer
634 views

How stressful is work of quants? [closed]

I would like to know how stressful this work can be and where the stress could come from. How to avoid it? Does it really depend on the company you are working? Is there a way to know in advance if ...
4
votes
1answer
318 views

Divergence issue with my monte carlo pricer…

I am trying to implement a vanilla European option pricer with Monte Carlo and compare its result to the BS analytical formula's result. I noticed that as I increase (from 1 million to 10 millions) ...
6
votes
2answers
526 views

Vanilla European options: Monte carlo vs BS formula

I have implemented a monte carlo simulation for a plain vanilla European Option and I am trying to compare it to the analytical result obtained from the BS formula. Assuming my monte carlo pricer is ...
0
votes
1answer
229 views

What are the rules for quoting option prices on the market?

I have implemented a monte carlo pricer for an option. I simply don't know how many decimals I need to include in the quoted price. Can anyone please provide guidelines?
8
votes
3answers
792 views

Alternate money management strategies to Kelly?

Other than Kelly (or fractional derivatives), are there other money management strategies in wide use among quant funds? Certainly Kelly is mathematically optimal, but perhaps there are other ...
5
votes
2answers
3k views

Who cares about autocorrelation?

There is much in the literature about time-series and the problem of auto-correlation. Unfortunately the issue of why auto-correlation is actually troublesome is glossed over, and methods for testing ...
10
votes
5answers
1k views

Monte carlo methods for vanilla european options and Ito's lemma.

I understand that by applying Ito's lemma to the following SDE $$dX=\mu\,X\,dt+\sigma\,X\,dW$$ one obtains a solution to the above SDE which is as follows: $${X}\left( t\right) =\mathrm{X}\left( ...
9
votes
1answer
425 views

Fixed income modeling

I am currently working on my research paper and trying to explain a two-dimensional variable: volume and instrument of corporate debt financing. Independent variables that I believe must be included ...
2
votes
0answers
628 views

Hobbyist Quants [closed]

I'm interested in investing some money in the stock market, and I have the math background that will make following the math used in quantitative finance possible (with some work). What are the ...
7
votes
1answer
1k views

How should I estimate the implied volatility skew term when calculating the skew-adjusted delta?

I'm trying to come up with the implied volatility skew adjusted delta for SPY options. I'm working with the following formula: Skew Adjusted Delta = Black Scholes Delta + Vega * Vol Skew Slope. I ...
3
votes
1answer
3k views

How to estimate a multivariate GJR or TARCH model in Eviews?

How do I specify the GARCH/TARCH equation in Eviews 6 in the variance regressors frame, if I want to find out whether there are volatilty spillovers from stock markets A and B to stock market C? P.S. ...
7
votes
1answer
2k views

What is the unit of the Distance to Default measure?

I read in a book that the distance to default of a company is "2.978". Can anyone please tell me what is the unit implied behind this measure? Are they "years" for instance?
3
votes
1answer
193 views

Is it possible to estimate the correlation between an equity and its IV, purely from its IV skew?

If we know the options Implied Volatility (IV) skew for an equity, is it possible to calculate the probability of the equity moving, given a move in the IV? We can define IV skew as the difference ...
11
votes
1answer
3k views

How do I compare implied and historic volatility?

what would you suggest are the starting points for comparing, in an easy, visual way, implied and delivered volatility surfaces? I'd like to see what the differences are between the historic surfaces, ...
4
votes
2answers
457 views

Debunking risk premium via “hedging” argument? (or why even in the real world $\mu$ should equal $r$)

Since I began thinking about portfolio optimization and option pricing, I've struggled to get an intuition for the risk premium, i.e. that investors are only willing to buy risky instruments when they ...
5
votes
3answers
2k views

What API methods are there to determine a company's market cap?

I'm wondering what API methods there are to determine a company's market cap, i.e. (number of shares issued) * (price per share). I know IQfeed and perhaps Yahoo will do this - does anyone know of ...
7
votes
2answers
915 views

Is duration additive? $C_{newDur}=A_{fundDur}w_{a} + B_{fundDur}w_{b}$?

Suppose quantified duration (like Macaulay duration with changing intervals) $Dur = \frac{\sum t_{i} PV_{i}}{\sum PV_{i}}$ and two funds having durations $D_{a}$ and $D_{b}$. You own them in the ...
29
votes
3answers
9k views

How can we reverse engineer a market-making algorithm (HFT)?

Consider a market participant $A$ who is mechanically following an automated liquidity providing algorithm (HFT) in a number of large cap stocks on a specific exchange. Assume furthermore that we are ...
8
votes
3answers
772 views

How do I eliminate developed currency funding cross rate risk in an EMFX position?

Back in the "old days" (ie 5-10 years ago) when we wanted to be long or short an emerging currency (say the ZAR, BRL, or TRY) we simply did everything against the pre-eminent currency of the day, the ...
8
votes
4answers
1k views

How do I estimate the joint probability of stock B moving, if stock A moves?

I have two stocks, A and B, that are correlated in some way. If I know (hypothetically) that stock A has a 60% chance of rising tomorrow, and I know the joint probability between stocks A and B, how ...
7
votes
1answer
638 views

If stock A has a 60% chance of rising, and stocks A and B have 80% correlation, what is the chance of stock B rising?

As in the subject, I'm interested in a math puzzle of sorts: If stock A has a 60% chance of rising, and stocks A and B have an 80% correlation, what is the chance of stock B rising? Would it be ...
10
votes
3answers
2k views

How to simulate slippage

I'm backtesting a trading strategy, using free OHLC data from yahoo or google. I'm simulating friction by lopping a flat percentage (say 0.5%) off my returns for each day that I make a trade. Whats ...
8
votes
3answers
4k views

R code for Ornstein-Uhlenbeck process

Can any one help me with some R code to run Ornstein-Uhlenbeck process?
9
votes
1answer
448 views

How to estimate the covariance of an index with a basket of stocks?

What would be an ideal way to estimate the covariance of an index with a basket of stocks? For example, should I use one-tail ANOVA test or an individual stock & index F-test?
5
votes
2answers
214 views

Question about equations and risk factors.

Say I have two risk factors $X_1$ and $X_2$. Standard deviation for $X_1$ is $\sigma_1$ and $\sigma_2$ for $X_2$. Furthermore, $X_1$ has a mean of $\mu_1$ and $X_2$ has a mean of $\mu_2$. Correlation ...
3
votes
1answer
894 views

Linear combination of gaussian random variables

I know what random variables are but I don't understand what a linear combination of gaussian random variables is. Can anyone please give me an explanation or clues? Thanks in advance, Julien.
2
votes
2answers
4k views

How do I estimate convergence in monte carlo methods?

I am experimenting with Monte Carlo methods. I'd like to measure/estimate convergence with a graph/chart. How do I do that? Can anyone please direct me to relevant documentation/links or even give me ...
1
vote
1answer
38 views

CFTC CPO Exemptions

What are the exceptions set by the CFTC which exempt Commodity Pool Operators (CPO) from registering as such?
7
votes
2answers
334 views

How to generalize the Vickrey auction for two-sided trading?

I want to try out the Vickrey auction for a project of mine, but I'm not sure that I understand it completely. The thing is that I have several consumers and several providers trading one resource ...
5
votes
1answer
241 views

Modeling liquidity effect on option prices

What are practically useful ways of modelling the effect of liquidity on options?
5
votes
2answers
462 views

S&P 500 list of stocks since 1960

I am looking for the S&P 500 index list of stocks for each day since January 1, 1960. Does anyone know where I can find these lists?
3
votes
1answer
523 views

Basel II modelling vs Solvency II modelling?

How do the two modelling frameworks compare? I spent some time developing PD LGD and EAD models for banking portfolios... But I never did insurance modelling project which I suspect is based on ...
5
votes
1answer
2k views

Mean Reversion Time Frame

I am running a mean reversion strategy. I have question with regards to half-life; I have heard of OU process to determine the high life but it's not giving me the kind of result. Can any one ...
5
votes
7answers
2k views

Recommendation for a book on CVA/Credit Risk and PD/LGD/EAD modeling?

I need suggestions for some good books on the following topics: Credit Value Adjustment (CVA) / Credit Risk Probability of Default / Loss-Given-Default / Exposure-At-Default modeling Any pointers ...
17
votes
2answers
3k views

Do you have historical tick data you want to donate?

Do you have historical market/pricing ticket data that you would like to donate to the Open Source Trader project (OST)?? Please: upload your files! Once we gather some data, we'll do our best to ...
6
votes
4answers
732 views

How to hedge against lack of volatility

Say you have a trading system that works best when markets are most volatile. What would be the best way to hedge against lack of volatility ? For example, 2008, 2009 was highly volatile and it has ...
5
votes
1answer
535 views

Tradable Volatility

VIX (spot) has very nice features, including mean reversion. We all know that we can't trade VIX (spot). The closest we can get is using front-month future contracts. The problem I have with that is ...
10
votes
3answers
2k views

Order submission strategies of a rational market maker?

Consider a market maker that has decided to try to make a round-trip trade in stock A in order to capture the bid-ask spread. Assume furthermore that he has no current inventory in the stock A. To ...
5
votes
5answers
5k views

Utility to download historical Implied Volatility data from Interactive Brokers?

Does anyone know of a utility that can download historical Implied Volatility (IV) data from Interactive Brokers' Trader Workstation?
1
vote
2answers
885 views

Whats the equation to calculate the area under the curve of a normal distribution, given an upper and lower standard deviation?

Lets say I want to find out the area under the graph of normal distribution curve, between X1=standard deviation of -0.5 and X2 = standard deviation of 0.5. Is there a formula for this? Case study: ...
3
votes
3answers
500 views

If I have a model that gives 10% “probability edge” over random chance, how do I calculate the position size?

Lets say that I have an imaginary model that always gives me a 10% edge over straight 50/50 odds, one day in advance, for an index (i.e. 60% chance of winning / 40% chance of losing). How would I ...
6
votes
1answer
1k views

A generic limit order book: What are the most important queries it should be able to answer?

Assume a class LimitOrderBook which represents a limit order book in a trading system. To be able to represent the limit order book a data handler reads a feed ...
3
votes
3answers
3k views

Monthly data for popular indices (constituents).

Trying to be concise: I am interested in the most popular indices (SP500, FTSE100, DAX30, CAC40, SMI30, etc). For each index I want to know its constituents in a monthly basis. For each constituent ...
9
votes
5answers
4k views

Earnings and valuation data sources online

Are there any free/cheap sources for historical data on company earnings and valuations? I can get historical price data from Google and Yahoo, and it looks like I can get about five years of ...
4
votes
2answers
1k views

Mass Market Data Source

My current project requires large amounts of historical and real-time market data (1m or 5m bars for various products, mostly US futures for as far back as available). This data will be analyzed by ...

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