1
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0answers
59 views

Quadratic variation

The following question is more math than quant, but since it arises from a mathematical finance textbook, I've figured the good people in this sub might be able to help me. So here goes. In the 3rd ...
1
vote
0answers
31 views

Arrow-Debreu Equilibrium Pricing

I have this problem in asset pricing that I don't know how to solve. Here it is: Consider an economy with a complete set of Securities and $N$ states of the world Tomorrow. Assume that there are two ...
1
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0answers
84 views

Numerical Methods for Merton Model

The stochastic differential equation for an underlying with jumps in Merton model is: $$d{{S}_{t}}=\mu \,{{S}_{t}}dt+\sigma \,{{S}_{t}}\,d{{W}_{t}}^{P}+(J-1){{S}_{t}}d{{q}_{t}}$$ where $t \quad\,\,\, ...
1
vote
0answers
48 views

stochastic log utility maximization problem, portfolio optimal strategy

Looking for a help with explaining some steps of the logarithmic utility maximization problem where given market with a zero safe rate and risky asset with dynamics $$ \frac{dS_{t}}{S_{t}}=\mu B_t ...
1
vote
0answers
39 views

Proper Definition of Backtesting Parameter

Currently I'm trying to test the efficacy of a tail-hedging strategy in which an investor goes long in an index and correspondingly buys 1-month OTM put options. For practical reasons, the options ...
1
vote
0answers
19 views

How to run swapbyzero matlab function in a loop [closed]

I made a for loop in Matlab in which I price a swap by using the swapbyzero function. The swapbyzero function requires a rates structure created by using the intenvset function from matlab. The ...
1
vote
0answers
51 views

VIX ETP Net Vega exposure

Does anyone know the calculation that these EQD desks are using to calculate the net Vega exposure of the VIX ETPs? I am assuming it involves shares outstanding in each ETP, the value of a 30 day ...
1
vote
1answer
75 views

Differentiating a Payoff

Okay this is probably going to be an extremely easy/straightforward question but I thought I should post it here just to double check. Suppose I have a payoff $\Phi = (S_{T}-K)^{+}$. Now let's say I ...
1
vote
0answers
23 views

Fama-French Factors for ETFs and MFs

Is there a public source or a paid service that provides FF3 (or FF4 = "Carhart") factor loadings for US traded ETFs and Mutual Funds? Something that is regularly updated and that provides comparable ...
1
vote
0answers
24 views

Machine Learning Munging - order of transforms? + adding in econometric tests?

I have a list of possible transforms, and I've read some confusing/contradictory stuff about the preferred order in which these operations are performed. Maybe 1) the order is sometimes amorphous, ...
1
vote
0answers
30 views

Estimation of Affine Term Structure Model

In this paper the estimation of Affine Term Structure models via ML is discussed. In the Affine $N$-factors model the price of the bond is $$ P(X_t,t,T;\theta) = ...
1
vote
1answer
33 views

Calculation loan's margin from bank perspective

I was wondering how bank calculates in practice the amount of money it earns after granting a credit (I hope margin is the proper word). Supposing, that the client took 3-year 10000 euros loan (36 ...
1
vote
1answer
72 views

How to statistically prove that an automated trading strategy outperforms the market? [closed]

For a university project, I have been working on a rather complex automated trading strategy, that levers machine learning techniques. I backtested the algorithm, as a result I have daily return data ...
1
vote
1answer
187 views

Volatility Smile Approximation

Does anyone know what type of model is used to model the skew and IVs inside Thinkorswim platform for its volatility smile approximation? I am trying to replicate but do not know where to start. Any ...
1
vote
1answer
49 views

Discount factor taking into account yield curve shape

I have always been told that the discount factor formula is just: $$ DF(T) = \frac{1}{(1+L_{t_0})^T} $$ where $L_{t_0}$ is the LIBOR rate on one period (the first one I guess) and $T$ the number of ...
1
vote
0answers
34 views

Modelling log-returns and calculating the portfolio return

I know this might be a trivial question, however, I would be grateful for some clarification. I am working on weekly log-return data, doing volatility-foracasting using GARCH models and then using ...
1
vote
0answers
54 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 ...
1
vote
0answers
17 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 ...
1
vote
0answers
31 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 ...
1
vote
1answer
25 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 ...
1
vote
1answer
27 views

arbitrage proof question

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 ...
1
vote
1answer
53 views

Pricing a Vanilla swap between coupons; What rates to use?

Vanilla Swap question. Entered into a 5Y fixed for floating HUF swap. Fixed is annual coupons, Float is semi-annual coupons. 1 month later I want to price it. I set up my future values for Fixed ...
1
vote
0answers
55 views

Optimize a trading strategy created in excel with R

I have created quite a complex back test in excel spanning 15 years with 17 parameters. I would like to optimize the parameters which would give me maximum return given a maximum draw-down percentage. ...
1
vote
1answer
75 views

Bloomberg Historical Fundamental Data - Point in time

I'm trying to retrieve historical stocks fundamental data from Bloomberg to backtest some quant ideas. I'm having trouble to find the correct point in time the data was available. For instance, the ...
1
vote
1answer
56 views

Derivative: Delta of a Down and Out Call Option with Barrier=Debt(K)

I am trying to compute the derivative of this function with respect to V0: This is the price of a down and out call option, assuming the barrier equal to the level of debt K. In other terms, I need ...
1
vote
0answers
12 views

EMTA Guidelines

Does EMTA guidelines are only for Non-Deliverable trades? IF yes, then why this is applicable for Deliverable Option trades? EMTA Site - http://www.emta.org/ndftt.aspx
1
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0answers
47 views

Replicating American call option

Consider a two-period binomial model for a risky asset with each period equal to a year and take $S_0 = 1$,$u = 1.2$, and $l=0.8$. The interest rate for both periods is $R = .05$ a.) If the ...
1
vote
0answers
22 views

Event Study - Event Induced Volatility for One Firm

Normally, in a stock price event study, we assume that the daily variance in the estimation period is the same as that during the event window. The event-induced volatility literature (eg, Boehmer, ...
1
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0answers
15 views

Forward Exchange Rate Data: Germany x US

Would anyone know where I can find historical forward exchange rate data between germany and US, yen and US to download? In Bank of England website i already found. Thanks
1
vote
0answers
17 views

First coupon CDO tranche

I am interested in Tranches on Credit Indexes. Let $T$ be the trade date, let $t_1<T<t_2$ be the accrual dates surrounding the trade date. I would like to know which option is correct ? A) ...
1
vote
0answers
29 views

Calculation of IRR [closed]

How do we calculate IRR if I have an investment that allows me to buy into 10% of a company @1m and the first year is a negative cash flow of 200,000 but the subsequent years till year 10 is a ...
1
vote
1answer
62 views

Generating random yields

I would like to test different methods for fitting a yield curve, like the Nelson-Siegel, cubic splines etc. I would like to generate random yield to maturity data, that somehow reflects the common ...
1
vote
0answers
41 views

How are ETF fees deducted? What happens if you short an ETF?

When I buy an ETF, the ETF issuer wants a certain management fee (expense ratio). How is this usually paid? I've read that this might be deducted from dividends - is this the case? How does it work ...
1
vote
1answer
69 views

BSM Model - Actual probability

Actual probability of exercise of put option under BSM model is: PD = N(-d2(u)) (using expected return of stock, u) Risk-neutral equivalent is ...
1
vote
0answers
66 views

Two-period binomial model for American option

Consider a two-period binomial model for a risk asset with each period equal to a year and take $S_0 = 1$, $u = 1.5$, and $l = 0.6$. The interest rate for both periods is $R = .1$. a.) Price ...
1
vote
0answers
67 views

SDE for a portfolio of two correlated assets $ Y_{t} = 2 S^{1}_{t} S^{2}_{t}$

I am analysing a problem where I have two correlated stocks described by Brownian motions $$ \frac{dS^{1}_{t}}{S^{1}_{t}}=\mu_{1} dt + \sigma_{1} dW^{1}_{t} \quad \quad (1)$$ $$ ...
1
vote
0answers
40 views

On the construction of a Brownian motion from a Gaussian process

Let $X$ a Gaussian process defined by $$ X_t=\int_{0}^{t}\left(\frac{1}{\sigma}\left(r_s-\frac{\sigma^2}{2}\right)-\rho\sigma_P(s,T)\right)\mathrm{d}s+\sqrt{1-\rho^2}Z_2(t)+\rho Z_1(t);\;\;t\in[0,T] ...
1
vote
0answers
53 views

Modeling Interest-only Mortgages

First post on this forum - happy to be here. Please give feedback if this is off-topic so I can more meaningfully contribute moving forward. Can we infer a range of future all-in costs for I/O ARMs ...
1
vote
0answers
25 views

PnL Explained Using Scenario(Full Reval Model)

I was wondering if any quant guru can help . How to calculate the PnL explained using full reval aka scenario based = > t - (t-1) approach for linear instrument. I am finding difficulty to understand ...
1
vote
0answers
16 views

How to calculate the initial payment of a graduated payment mortgage (GPM). Real estate Mortgage analysis

My professor used this: 12%, monthly-pmt, 30-yr GPM with 4 annual step- ups of 7.5% each, then constant after year 4: ...
1
vote
0answers
15 views

Affect of choosing different combinations of variables for multivariate regression [closed]

If I have variables x1,x2,x3,and x4 that have correlation coefficients −0.9,−0.5,0.5, and 0.9 to another variable y, what is the effect of choosing different combinations of them in a multivariate ...
1
vote
0answers
24 views

Marginal Distribution using GARCH model

I have n return series. I fitted AR(1)-GARCH(1,1) to each return series. Then used PIT(residuals) to transform the residuals to uniform. Then I fitted n dim copula to the data. I simulated 1000 points ...
1
vote
0answers
17 views

How to Rank assets in Portfolio? [closed]

I am working on active equity Portfolio. I have total 30 securities in my Portfolio. Can someone please guide me how can I rank those assets in my portfolio. ...
1
vote
2answers
24 views

Initiating new orders with active “order-session” only?

Is it a must to establish "quote-session" & subscribing to quotes/market data before initiating a "New Order-single(Market-GTC)"? I actually can't see any use of quote-session for trading ...
1
vote
0answers
19 views

what do metrics and indicatives mean in the finance context? Like trading of MBS products

it's often heard in my daily work as a programmer in an investment bank, supporting mortgage backed securities desks (passthrough, agency cmo, cmbs, etc). My take is that the terms describe the ...
1
vote
0answers
14 views

How to calculate price in non-competitive bidding that bidders will receive?

Following bids are received in treasury bond auction. Notified amount is Rs.20,000Million. No amount devolves on the RBI/PDs. No. Of bonds/ Price(Rs.) 46/ 110.185 45/ ...
1
vote
0answers
41 views

Distribution of AR and MA polynoms roots in ARMA/ARMA-GARCH models

I have another noob question. So, for example, I have ARMA(2,2) model: $$ x_{t} = \phi_{1}x_{t-1} + \phi_{2}x_{t-2} + e_{t} + \theta_{1} e_{t-1} + \theta_{2} e_{t-2}$$. So, I have 2 polynoms: $$1 - ...
1
vote
1answer
33 views

Fast to compute, yet plausible risk attribution measures

I am looking for a fast to compute, yet plausible risk attribution measure based on the risk measure used compute overall risk. To be more specific, assume that my risk measure is VaR of a portfolio. ...
1
vote
0answers
26 views

What is the difference between a three month return and a quarterly return?

I am looking at VGENX, and this product has first-quarter and three-month returns of 7.8% and 20.3%, respectively, according to zacks.com. I take it as the three month return is calculated taking into ...
1
vote
0answers
24 views

A question about spot rate forward rate and swap rate [closed]

A term structure is given as follows. The market convention is compound interest, that is, the present value of one unit at time T is...

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