1
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1answer
73 views

Is there any package in R for conditional autoregressive range model (CARR)?

I am working on a project which requires volatility estimation using range based volatility. Is there any package in R which helps me in estimating the CARR model proposed by Chou (2005).
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1answer
42 views

Relation of survival and non-survival Marshall-Olkin copula

Let us have two random variables $A$ and $B$ representing lifetimes of two elements of a system, where $A$ has cdf $F_A(x)$, $A \sim Exp(\lambda_1 + \lambda_{12})$ and $B$ has cdf $F_B(y)$, $B \sim ...
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1answer
71 views

Options and bond related to convexity

Relevant definition: Assumption 2.1 (No dominance). If the payoff $P$ of a financial instrument is nonnegative, then the price $p$ of the financial instrument is nonnegative. Notation: $T$ - the ...
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1answer
32 views

Calculate control variate for monte carlo simulation

For an exercise I need to calculate $\mathbb{E}[X]$ with a Monte Carlo simulation. I need to use control variate $Y$ with $\text{Var}(Y)=2$ and $\text{Cov}(X,Y)=1$. I am asked to give the optimale ...
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1answer
58 views

Martingale correction for Andersen scheme with Interest Rate

I have implemented martingale correction to my Andersen scheme for Heston model, as it is in the paper (page 19-22): http://www.ressources-actuarielles.net/EXT/ISFA/1226.nsf/0/...
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1answer
126 views

Is Value-at-Risk translation invariant?

Let: $X=V_1-V_0R_0$ where $R_0$ is the interest rate. Then, is it so that this risk measure is Translation Invariant as: $\textit{VaR}_{\alpha}(X)=\textit{VaR}_{\alpha}(V_1-V_0R_0)=V_0+\textit{VaR}_{\...
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2answers
64 views

How can I find stocks that have had a X% price swing within Y days, sorted by recency of said swing? [closed]

Let's say that I want to find stocks that have moved +-20% within a 10 day period. ABC would match if at t, ...
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2answers
342 views

Barrier option : Monte carlo simulation

I am trying to price a Down-and-Out Call using Monte Carlo simulation. The problem is that I get the right price for the vanilla option (same price as the analytic formula of Black and Scholes) but I ...
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1answer
124 views

Geometric Brownian Motion: d(S) vs. d(ln(S))

I am quoting from "Tools for Computational Finance, 5th Edition" [Seydel]. I wonder whether the histogram of simulations of the first (yellow) SDE makes sense... especially given that Seydel (...
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1answer
248 views

How to answer this interview programming question about drawdowns?

I saw this question as an interview, and to be honest, I have no idea what it's even asking for: Write a function (in R or Python) that finds the stock drawdown which will trigger a rebalance, ...
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1answer
153 views

One-step ahead forecast of a AR(1) process (GARCH context)

I am using a Matlab toolbox for obtaining one-step ahead forecasts of the conditional mean from the ARMA(1,0)-GARCH(1,1) process and I have encountered a piece of code that contains, in my opinion, a ...
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1answer
41 views

nikkei 225 yen contract on the CME

This may be a silly question on futures trading, but I haven't found a clear answer on the CME website. For the Nikkei 225 Yen contract on the CME, which is denominated in Yen, the margin is also ...
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1answer
129 views

Estimating profit/loss of a Gold Futures option using Theta and Gamma

HELP! I am trying to find how much the underlying price of a gold futures option must move in order to breakeven on owning an option for a day. I was hoping someone versed in pricing options could ...
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2answers
101 views

How does stock buy back increase RoA of a company?

In one of the videos in Youtube which explained about stock buy backs, it was told that companies can achieve higher Return on Assets by doing stock buy backs. The explanation went like this :- When a ...
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1answer
73 views

Path Dependent Options - Which choice of model?

Can someone please help elaborate/clarify the below statements? I've heard about them from people but would like to know some more detail behind these statements.. - 1) SABR is not useful in pricing ...
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1answer
84 views

Double no touch option with four barriers

The double no touch (also known as a range binary) is an option with two American barriers. You define one barrier above the underlying asset and one below it. If during the option's lifetime the ...
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2answers
39 views

Why to 2 methods to calculate bond price with semi annual return give different answers?

I am confused as 2 methods give different answers. The difference lies in the "to the power" numbers for discounting. Example: 2 year semi annual bond (4 periods), $1m annual Coupon Payment, 5% Yield ...
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1answer
100 views

Drivers of equity returns: dividend yield, change in P/E and dividend (or earnings) growth

In an NBIM paper I read the following: "... one can break down the total equity return into the dividend yield (the starting valuation), the change in the P/E ratio (the change in valuation) ...
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1answer
69 views

Prove $E_{\mathbb Q}[X_t | \mathscr F_u] = X_u$ given $Y_t$ is a martingale

We are given a filtered probability space $(\Omega, \mathscr{F}, \{\mathscr{F}_t\}_{t \in [0,T]}, \mathbb{P})$, where $\{\mathscr{F}_t\}_{t \in [0,T]}$ is the filtration generated by standard $\mathbb ...
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1answer
40 views

Pricing of American Deriviatives

Reading the book by Andrea Pascucci "PDE and Martingale Method in Option Pricing" I am struggling with a very simple issue. Suppose we want to find the price of an American derivative $X$ in an ...
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1answer
126 views

Historical book value data for S&P 500

In Graham's Intelligent Investor, he calculates a metric Earning/book value. I would like to calculate the same ratio in modern times (1960-2015) but am having trouble finding this data. I have found ...
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1answer
56 views

How to change to risk neutral measure in a mean reversion process?

For example, in the Ornstein-Uhlenbeck process do I just replace the drift term with the risk free rate, like in the GBM case?
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1answer
156 views

Delta Hedging for 2 Factor Models

If the value of an option at Maturity is what is the off-setting position you take for X and Y, if you are i)Long Call of the option ii)Short Call of the option iii)Long Put of the option iv)Short ...
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1answer
39 views

Optimal Financing Mix: Cost of Capital Approach

According to Cost of Capital approach to optimal financing mix we can calculate Cost-of-Capital-minimizing $\frac{D}{E}$ ratio as follows: $\frac{D}{E}_{opt} = argmin_{\frac{D}{E}}WACC$, where $...
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1answer
41 views

Asymmetric Random Walk / Prove that $T:= \inf\{n: X_n = b\}$ is a $\{\mathscr F_n\}_{n \in \mathbb N}$-stopping time

Given random variables $Y_1, Y_2, ... \stackrel{iid}{\sim} P(Y_i = 1) = p = 1 - q = 1 - P(Y_i = -1)$ where $p > q$ in a filtered probability space $(\Omega, \mathscr F, \{\mathscr F_n\}_{n \in \...
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1answer
85 views

What is the yield when a floating-rate note is issued above/below par?

I am new in this area so all help is much appreciated! Let's say a 3-year floating rate note pays a coupon of LIBOR+100 bps, and is issued at a premium with price = 100.5. I understand that this ...
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1answer
32 views

no arbitrage condition for paylater option

a paylater option has the folowing payoff: $(S_{T}-K)_{+}-P1_{S_{T}>K}$. To determine the fee P that the option holder must pay, we must write the non arbitrage condition. Why is it this: $E_{Q}[(...
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1answer
134 views

Anomaly or feature from Quantmod in R regarding getFX - currency data

I am using R to analyse stock data, using the quantmod package to get all sorts of data, but here specifically FX data using the function ...
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1answer
66 views

Is anybody using 13F-HR data for making strategies?

I see that a lot of quants work on high frequency strategies. Mostly used data are prices, volumes. I wonder, is anybody using data on funds positions, which they have to disclosure quarnerly under ...
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1answer
94 views

QuantLib: New Instrument derived from VanillaOption + PricingEngine that must work for both VanillaOption and the derived class

The derived class is a Vanilla Option on a Future and I need to specify the expiry of the underlying future which is in general different (later) than the expiry of the Vanilla Option. I have ...
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2answers
127 views

Pricing Forward Start Option with PDE

I am looking for references (books and papers) or suggestions on how to price forward starting calls using a PDE approach typically in the Heston model (In the BS world, the computation is trivial), ...
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1answer
46 views

Negative risk neutral probabilities economic argument

We know of plenty ways to extract risk neutral distirbutions from option prices (for example Breeden Litzberger) but there is no real analysis on how to interpret negative state prices (Haug 2007 for ...
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2answers
93 views

Fourier Transform

In a notes on "Option Pricing using Fourier Transform": Price of plain vanila call is given by $$ C(t, S_t) = e^{-rT}\mathbb{E}^{\mathbb{Q}}[(S_T -K)^+|\mathcal{F}_0] = e^{-rT} \int_K^{\infty} (S_T -K)...
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2answers
195 views

Logistic Regression of tick data

I've been given some data (it's financial tick data) and I want to predict based on some observed variables whether the next move will be up, down or unchanged. So I have been trying to use ...
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1answer
42 views

Is the delta of a call option a martingale using the stock numeraire?

For example in the Black_scholes case the delta N(d1) does appear to be equal to the expectation (under the stock measure) of the delta at expiration, which is the expectation of I(S(T)>K). Is ...
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1answer
49 views

How to Calculate Return Option with Forward Measure

I am trying to computing the price of an option at time $t$, with payoff $X = \frac{S_{T_2}}{S_{T_1}}$, at time $T_2$, where $t < T_1 < T_2$. Here how I compute it: Using the forward measure $...
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1answer
50 views

Methods or models to predict activity of clients of a bank

I'm a Physicist but I'd like to know if there are some methods or models to predict the activity of the clients of a bank. I heard that banks are interested in this sort of analysis so I got curious ...
1
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1answer
55 views

When to include dividends in option valuation

When using the Black-Scholes-Merton method for option valuation which takes into account dividends, does the dividend only get included into the calculation of options whose lifetime straddles the ...
1
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1answer
155 views

CDO selling or buying credit protection?

I think there is an error in the Meissner text - Correlation Risk Modeling and Management and can't find an errata for this text to verify. On page 19 the foot note reads: Shorting the equity ...
1
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3answers
165 views

delta hedging strategy for OTM option

Wondering how you would think about the following thought experiment - suppose you sell an OTM call option and plan to implement a delta hedging strategy whereby if the price of the stock were to ...
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2answers
110 views

Smoothing factor of Exponential Moving Average

I'm trying to implement an Exponential Moving Average indicator, but I'm sort of stuck on the smoothing factor. What I've come up with: $$\frac{1}{N}\sum\limits_{k=0}^N \alpha^{k} P_k$$ Where N is ...
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1answer
45 views

Listed companies on NASDAQ

Where can I find a list of listed companies on NASDAQ from 2000 to 2014?
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1answer
42 views

SVI calibration, why fit to option prices and not implied volatilities

Bear with me. Related (very good) question: How to calibrate a volatility surface using SVI From this paper http://arxiv.org/pdf/1204.0646.pdf, page 21. Why does the recipe suggest fitting to option ...
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3answers
189 views

Calculating historical implied volatility

I know that each individual option has it's own implied volatility, but how do you go about calculating the overall implied volatility for an underlying? For example when someone sais the IV of a ...
1
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1answer
54 views

Is it possible to detect a belief that a security will peak and then decline by analyzing American options pricing?

Please forgive me if this is a dumb question. I know only the basics of options and their valuation, and this is a question I've wondered for some time without being able to find a satisfactory answer ...
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1answer
51 views

Interpolation for PDF from Cumulative Distribution

How to interpolate PDF(Probability Distribution Functions) from CDF (without root finding method) ? Please tell the steps to do so. Thanks.
1
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1answer
337 views

Portfolio Management in R

I’ve been looking around for a R-package that will allow me to track my stock portfolio - basically I would like to enter stocks that I own, track the trades I make, calculate my open position & ...
1
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1answer
28 views

What are pre and post stress capital?

Fed papers make reference to a post-stress and pre-stress capital. I can't find definitions of these online, but from the context (below), it sounds like the post-stress capital is the estimated ...
1
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2answers
55 views

Trying to understand how to convert profit to home currency

I'm looking at example 2 here: http://fxtrade.oanda.ca/analysis/profit-calculator/how ...
1
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1answer
56 views

Applying interest rate models for volaility rate

To what extent may the interest rate models be applied for modeling implied volatity? The story: I was checking different stochastic option pricing models for being able to replicate implied ...

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