# All Questions

328 views

### Risk Neutral Evaluation - Exchange/Spread Options

I have two assets, $S_1$ and $S_2$, which follow geometric Brownian motion processes. This implies that both $S_1$ and $S_2$ have a lognormal distribution. I'm trying to get the exchange option price ...
199 views

### reinsurance pricing equivalent to option pricing

Is it true that pricing a reinsurance contact is equivalent to pricing an option. Basically a reinsurance just cuts off the risk exposure of the insured institution to a threshold say $K$. So if we ...
405 views

### Bond futures - calendar spread pricing

I am looking on literature and models on pricing a bond futures' calendar spread. assuming the basket of deliverable bonds is the same and the ctd is the same, what are the factores determining the ...
283 views

### Electricity volatility smile

In the electricity sector, what should be the shape of the volatility smile? a behavior similar to other commodities with a convex curve, decreasing first and then growing to the initial level. or ...
267 views

### Why are indifference equations in mean-variance portfolio theory convex shaped

As the title suggests why is the indifference equations in mean variance portfolio theory convex shaped? Indifference Equation: https://en.wikipedia.org/wiki/Indifference_curve A graph:
2k views

### IMM dates in excel

I need to get the IMM dates in excel. IMM dates are defined as the third Wednesday of every March/June/September/December.
120 views

### right benchmark for an incompletely diversified international portfolio (for a CAPM): MSCI World or MSCI ACWI IMI?

I want to calculate annual excess returns on portfolios using monthly returns for a CAPM (for the assets in the portfolio as well as for the benchmark), in order to have more information on the ...
2k views

### how to chain monthly excess returns into annual?

I want to calculate annual excess returns on portfolios using monthly returns for a CAPM (for the assets in the portfolio as well as for the benchmark), in order to have more information on the ...
475 views

### Heston MC Simulations - Speed up in Matlab

At the moment I am running a Quad Core Xeon PC with 12GB of RAM doing crude MC with 10k scenarios and 1000 time steps. And using fminsearch for calibration, and it takes about half an hour to an hour ...
276 views

### Volatility Estimation

Let say I ran two strategies and got its weights at each rebalance and equity curves. I would like to combine these systems to get the performance if I were to trade them concurrently from a portfolio ...
316 views

### Initial margin requirement as percentage, not dollar value

Problem from Finan, FM/2 On 12-30-1998, you decided to bet on the January effect. ON that day, you bought 400 shares of Microsoft on margin at the price of 139 per share. The initial margin ...
474 views

### When calculating CIP between EU and US, which interest rates data to use?

I am wondering which data to use to test the Covered Interest Rate Parity between Europe and the United States. Recap that for the CIP to hold, it should mean that F/S = (1+r)/(1+r*) where F = the ...
427 views

### Proxy for Expected Economic Growth

Can anyone help me understand how expected economic growth is usually measured? I've read several papers that talk about using breakeven inflation as a proxy for expected inflation, and then the ...
423 views

### BSYM for historical tickers

When looking through Bloomberg's BSYM data ADR and Common Stock data (5/2/13), I was able to find the ticker symbol 'V' associated with Visa but was unable to find any record for Vivendi, which I ...
136 views

### How does one use the Johansen cointegration test in a linear time series model?

How does one use the Johansen cointegration test in a linear time series model? Should I only use normalized coeffients for interpretation? Or, once I know that the variables are cointegrated, do I ...
746 views

### How is the MESA sine wave calculated?

I've found many, many sites which describe what the MESA sine wave looks like and how to interpret it. But I have yet to find any site that describes the actual formula used to calculate the sine ...
174 views

### monthly contract volume required for penny increments?

Have the exchanges disclosed their criteria? Does anyone have a best guess based upon observations of volume (however you wish to define it)? Please no qualitative answers.
67 views

### Annual Percentage Rate and Yield

I found references relative to US where the Nominal Annual Percentage Rate or simply APR is defined as the simple interest rate (i.e. proportional to time and without compounding). Instead the ...
71 views

### How to model housing loan market?

Housing loan market vibrates according to the policies, such as LTV rate, for example, if must pay 20% downpayment, LTV rate would be 80% interest rate, for example, lifting the loan rate, the ...
340 views

### How to use financial ratios in a factor model?

I am trying to understand how factor loadings in a general factor model are computed. For simplicity sake, lets assume a simple model: $$R = B \times F + \epsilon$$ $$R = N \times 1$$  B = N ...
274 views

### PIQ estimation for FIFO limit order book

Assuming that one doesn't have any kind of priveleged data feed (i.e. info is depth of book and volume executed at bid and ask), is it inherently easier to more accurately estimate position in queue ...
268 views

### round price to tick size

I have an issue about rounding price to tick size. Suppose there is price tick table below. what is tick size for price 1001, 1002 ... 1004? In other words, how to handle the price in between upper ...
1k views

### Calculating true value of a stock given the order-book and recent trades

I'm trying to calculate the 'true value' of a stock listed on an exchange. I have access to the limit order-book (containing all bid/ask quotes) and also all trades which have taken place (which ...
5k views

### Annualized Covariance

I have two time series. One with monthly returns on an asset and one with monthly returns on a benchmark index. I have calculated the covariance using the ...
912 views

### What are current interest rates on senior/junior/mezzanine loans for e.g. real estate developers?

For a case study I have to work on for a university course, about a real-estate-development project, I need to simulate the financing with different proportions of equity (40%), senior loan (35%), ...
154 views

### Do taking in account the CSA create convexity effects in your stripping?

When you strip your rate curves using CSA, what kind of convexity effects might appear as a result when computing the CSAed curve from one fixing to another ? For example if you are valuing an USD ...
205 views

### Expected length and depth of drawdown

Does anyone know of any model to estimate the distribution of drawdown length and depth assuming a certain portfolio dynamics? The arcsine law seems to suggest that a portfolio can spend a large ...
95 views

### Generating Return Streams for stress testing

There is never enough market data for testing. And sampling from user defined distribution is a hotly debated subject as which distribution does the market really go with? There are many ways to ...
332 views

### equity linked notes (bull/bear equity performance bonds)

I have to price what my lecturer calls "Bull and Bear Equity Performance Bonds". Basically there's dates $t_i \in [0,T]$, where $t_i - t_{i-1}$ is the same for all choice of $i$. On each date the bull ...
362 views

### normalized accumulation distribution

I am looking for a way to take an accumulation/distribution indicator and normalize it so I can compare a bunch of stocks with stock prices that have no relationship with each other. EDIT: This ...
2k views

### What does this formula (to derive annualized volatility from VaR) mean?

I'm faced with the formula shown in the image below, which I just don't understand, in part because I've no grounding in stats, and in part because I don't even understand the notation: What's ...
578 views

### Evaluating forecasting algorithm

I am trying to evaluate a forecasting algorithm for stock price prediction. However, the performance of the algorithm may be very much tied to the trading strategy. Is there a systematic way for ...
913 views

### Portfolio Greek Exposure Equations

What are the calculations for calculating greek exposures in a portfolio of equities and equity options? I think I have them but I want to be sure. Are these correct (for vanilla options)? ...
482 views

### Question on OptionMetrics: “Strike Price times 1000” differs too much from Index price

I have a question regarding the strike price that is given on OptionMetrics. My goal is to primarily retrieve options prices of a specific maturity with strike prices that are 20% in-the-money, ...
1k views

### Multi asset option portfolio risk management (greeks and FX exposure)

I am running an options book containing listed options across multiple products. I trade mostly equity and index related options - with a preference for European expiration products. I trade products ...
1k views

### FIX Heartbeat message not sent

I am using FIX4.3 and QuickFIX/n v1.0.0 for its implementation. I came across a situation where i had subscribed for Market Data and was successfully receiving Snapshot message then suddenly all ...
331 views

### Matlab toolbox for IQFeeds

Does anyone know how to connect IQFeeds with Matlab. It seems the datafeed toolbox only accepts Reuters, Bloomberg, Yahoo and one or two more. I've been looking all over the place for a Matlab toobox ...
479 views

### Calculate historical (ATM) option prices with public data

I just saw the question How to calculate the most realistic historical option prices with additional publicly available parameters and I am interested in the step before that. How can I calculate ...
529 views

### derivation of formula for portfolio skewness and kurtosis

Where can I find derivation of formula for portfolio skewness and kurtosis? I can find formulas everywhere, but not their derivations? For example, the portfolio variance formula is well known and I ...
568 views

### Arbitrage between markets

I'm trying to understand how arbitrage works, but I'm having some difficulties based on some restrictions: I have markets A, B and C. The currencies that are traded are X <-> Y, and X <-> Z. ...
896 views

### What precision do I need to calculate implied volatility?

I'm developing a software to calculate the implied volatility of an option using the Black & Scholes formula and a trial-and-error method. The implied volatility values I get are correct, but I ...
19 views

### How to choose a GARCH model which delivers iid standardized residuals?

For my thesis I first need to examine nine financial time series and fit a conditional volatility model such that the obtained standardized residuals ($z_t = \epsilon_t / \sigma_t$) are approximately ...
16 views

### What does it mean for an option strategy to be leveraged

Probably a newbie question, but what do traders mean when they say that an option strategy is leveraged ? And when can we say that it is the case ?
13 views

### Calibrating and simulating returns from a t-distribution

A slight twist (I hope) on the familiar problem of simulating log returns from a t distribution. My two questions concern calibration to sample data. First, one can infer the degrees of freedom in the ...
56 views

### Problems with a Black-Scholes modified equation

I haven't really studied much financial mathematics until about 2 months ago so I'm quite new to this stuff, so I'm sorry if this is a trivial question. At the moment I'm trying to work out what the ...
30 views

### calculating long short portfolios currency exposure

I have calculated the currency exposures of a long short portfolio simply by summing the weights of each stock. However I was told that I need to incorporate the dollar borrowing (short dollars), I ...
40 views

### serial correlation, Fama MacBeth (1973) procedure incorporating momentum

I have a question regarding the use of the Fama-MacBeth (1973) procedure on panel data. I am investigating the cross sectional determinants of expected REIT return following the procedure from: Chui, ...
23 views

### Cash Flow for Operating Cost, Sheldon Ross Question

In his An Elementary Introduction to Mathematical Finance, 3rd Edition book, pg. 55, Sheldon Ross has a question - A company needs a certain type of machine for the next five years. They ...
prove the condition $D<R<U$ is equivalent to the absence of arbitrage: R = risk free investment rate of return. U and D are returns corresponding to the upward/downward price movements of a ...