# All Questions

5answers
10k views

### Usage of NoSQL storage in Finance

I am wondering if anyone has used NoSQL (mongodb, cassandra, etc.) to store and analyze data. I tried searching the web but was not able to see if the financial firms had gotten in to using nosql ...
3answers
4k views

### Papers about backtesting option trading strategies

I am looking for all kinds of research concerning option trading strategies. With that I mean papers that publish results on different option trading strategies properly backtested with real-world ...
1answer
286 views

### Reading recommendation on using statistical analysis in online fraud prevention [closed]

Can you please recommend good reads on statistical analysis related to online fraud detection and prevention of account abuse?
0answers
166 views

### Benefits of Diversification and Rebalancing with negatively skewed leptokurtic return distribution?

I am missing tools to investigate this issue. I am trying to solve this question here. What kind of issues should you acknowledge over the naive diversification/rebalancing with normal distribution? ...
4answers
5k views

### Implementing data-structures in a Limit order book

I'm working on implementing a 'LOB' and I'm being very careful about choosing my data-structures so as to maximize performance. Using F# as an example, I need to consider a List versus Array for ...
1answer
463 views

### Comparing backtesting returns with real trading returns

I have 10 years of backtested simulated performance of some trading strategy (using historical prices), and N months of actual trading performance. What statistical test can I do find out if I'm on ...
1answer
418 views

### What research exists regarding implementation of reverse stress testing?

I need to implement a reverse stress testing model (definition here) I have searched around and cannot find anything substantial on the topic. Does anyone know of any good papers/references ...
3answers
1k views

### Optimality of Kelly criterion in non-normal environment

It is a not so well known fact that the Kelly criterion is only optimal in a nice and well-behaved Merton-world. It is far from optimal when things are getting non-(log)normal (i.e. more realistic!). ...
4answers
584 views

### Variable Selection in factor models

Let's say you have a dependent variable and many independent variables. What are the preferred metrics for sorting and selecting variables based on explanatory power? Let's say you are not concerned ...
1answer
177 views

### Quantifying Hedging Error Due To Expiration Day Range?

Let's say I have two call option liabilities that I want to statically hedge with a single call option. Liabilities: Liab_Call_1: Strike: 100 Notional: 1000 DaysToExpiration: 20 Liab_Call_2: ...
2answers
850 views

### Diversification, Rebalancing and Different Means

I have found many financial authors making generalizations about GM and AM but they are wrong in certain circumstances. Could someone explain their reasoning? My fact why they are wrong is based ...
2answers
524 views

### Change of measure discrete time

Suppose I have a random walk $X_{n+1} = X_n+A_n$ where $A_n$ is an iid sequence, $\mathsf EA_n = A>0$. How to construct a martingale measure for this case?
3answers
6k views

### Control for bid/ask bounce in high-frequency trade data?

The bid-ask bounce is the bouncing of trade prices between the bid and ask sides of the market. It introduces a systematic bias to the data which can cause serious problems in analysis. What methods ...
3answers
2k views

1answer
427 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 ...
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 ...
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 ...
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. ...
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?
1answer
194 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 ...
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, ...
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 ...
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 ...
2answers
933 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 ...
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 ...
3answers
792 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 ...
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 ...
1answer
642 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 ...
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 ...
3answers
4k views

### R code for Ornstein-Uhlenbeck process

Can any one help me with some R code to run Ornstein-Uhlenbeck process?
1answer
454 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?
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 ...
1answer
898 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.
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 ...
1answer
38 views

### CFTC CPO Exemptions

What are the exceptions set by the CFTC which exempt Commodity Pool Operators (CPO) from registering as such?
2answers
335 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 ...
1answer
242 views

### Modeling liquidity effect on option prices

What are practically useful ways of modelling the effect of liquidity on options?

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