# All Questions

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### What is the right group of durations?

It seems that the group of durations commonly used in quantitative analyse is $\mathbf{R}$ but it seems to me that $\mathbf{R_+^*}$ could also be an interesting choice. While I am not aware of ...
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### How to choose a risk-neutral measure when the market is incomplete?

I am more of a probabilist than a financial mathematician. I am currently working on the features of American put options under a particular stochastic volatility model. Like most stochastic ...
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### Black 76 for Options on Interest Rate Futures

This is my first time using Black76 to value options on IR futures and I have a question on $F$ and $K$. I understand the price for an IR future is usually quoted as $100 - r$. Do I use this price ...
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### Shortcomings of generalized Brownian motion for asset price modelling

I'm simply interested on hearing some views on which shortcomings arise by using the (multidimensional) SDE $$dS(t)=S(t)\alpha(t,S(t))dt+S(t)\sigma(t,S(t))dW(t)$$ as a model for asset prices. I know ...
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### Estimating risk aversion (power or exponential utility) from options prices

I came across this literature and it seems like there are a number of ways people do this. You can do it for an option on any underlying as long as you can create the risk-neutral p.d.f. If you agree ...
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### Is this usage of “M” and commas for a cash flow statement correct? [closed]

I recently was confused by a cash flow chart produced by a company I invest in. Each bar represents a monthly cash flow, but the values are confusing. For example, "3,012 M" is used on the most ...
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### HFT enhancements for FIX (Simple Binary Encoding) vs proprietary protocols performance and cost

I would like to know from those that have used FIX (with Simple Binary Encoding) for HFT compares with the current (proprietary) protocols in use that often vary per counterparty. Interested in ...
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### Probability of a return from historical average and standard deviation

I have a question from a sample exam paper that I'm having some trouble figuring out. The question is: Bavarian Sausage stock has an average historical return of 16.3% and a standard deviation of 5....
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Why do I often see some very deep limit buys and limit sells in a limit book? For instance the bid-ask may be \$39.00-39.01 but I see some bids at \$20 or even \$10 and some ask at \$60 or even \$500. ... 1answer 139 views ### A basic question about market jargon What does it mean by DBR 4s of Jan4, 2037? I know the Jan4, 2037 is the maturity. How about DBR and 4s? 1answer 83 views ### Get discount factors with limited knowledge? I am facing the problem of just having this information: 6% coupon bond with 2.5 years to maturity, traded at a 100% clean price 4% coupon bond with 1.5 years to maturity, traded at a 98% clean price ... 0answers 190 views ### Potential pitfalls in the use of correlation Background: The red line is an index, which goes from 0 to 100, measuring uncertainty in the markets. The dark blue line is a price index, which has a lower bound at 0, and virtually no upper bound. ... 1answer 60 views ### Why is the discount function non increasing if pure cash holdings are feasible? I am struggeling with the question, for example lets take a swap with rate of 3.2 for one year and 3.6 for 2 years and Discount Factor 0.96899 for the first year and 0.93158 for the second year. ... 0answers 94 views ### Optimizing stochastic functions numerically Is there an efficient and commonly used optimization method for "more complex" investment strategies. For instance, say you have a function$f(X_1,...,X_n,c,v)$where the$X_k$'s are your random ... 2answers 292 views ### Is price gaping the major risk that market maker has? Suppose you are a market maker. So you put a limit price out and hope someone will cross bid/ask spread to take your limit. But there is risk that bad news could come out and market will gap. So ... 1answer 130 views ### Optimal Choice of exceeding time Suppose you hold a share from company$Z$whose vaue at time$t$is$S_0+\sigma B_t$where$B_t$is Brownian Motion and$\sigma$denotes some volatility. Now lets assume that company$Z$may go ... 2answers 176 views ### Accrued Interest in CVA DVA I'm implementing the CVA/DVA for some derivatives, which follows a Hull-White model (one factor). Once I have calibrated the model and I get the results with the simulation, a quite interesting ... 1answer 658 views ### Components of an index in a specific date Objective: Get a list of all the companies that were ever part of an index (e.g.: FTSE100) in a given period of time (scale: years/decades). Method I have in mind: 1) Create an empty list k. 2) Get ... 0answers 121 views ### Can I trade the volume of a security or index? Is it possible to trade a derivative product priced on the volume traded of some underlying security or index? Does such a derivative exist on any exchange traded markets? Or anywhere? 2answers 297 views ### Extrapolating implied volatilities to small time Could anyone please direct me to literature or methods for extrapolating the implied volatility surface towards small expiry? I'm looking to price very short time to expiry binary options (e.g. 5 ... 0answers 207 views ### Proving the asymptotic distribution of Manipulation-Proof Performance Measure (MPPM) (Paper by Goetzmann et al.) In Goetzmann et al.'s (2007) paper, the authors derive a "Manipulation-Proof Performance Measure" (MPPM), which is a performance measure that is impervious to performance manipulation by fund managers.... 2answers 4k views ### Why do stocks with a negative beta return less than the risk free rate? Let's say we have two stocks, Stock A and Stock B. Both of them have the same standard deviation$\sigma$, and therefore have the same risk. The only difference is that Stock A has a perfect ... 1answer 300 views ### Closed form european option prices for a variance gamma process with a randomly distributed drift, volatility, and variance rate Does an option pricing model with a closed form European option price exist that takes into account randomly distributed drift, volatility, and variance rate? I prefer a modification to the variance ... 2answers 1k views ### Finding Probabilities Using The Binomial Model I was not able to find a similar question when searching, but if I've missed one please feel free to point me to it. Unfortunately the closest example in the textbook was not terribly helpful either. ... 1answer 152 views ### Why does the SMA and EMA appear to be relative to the timeframe? Why does the value of the SMA and EMA for the current time appear to change when I change my timescale. I'm using ActiveTrader by Fidelity, but I'm hoping there's an general phenomenon so that someone ... 1answer 1k views ### Question about weighted midpoint formula The answers from these two replies seem to contradict each other. The first numerator is bidSize*bidPrice + askSize*askPrice but the second is bidSize*askPrice + askSize*bidPrice. Price functions ... 2answers 2k views ### How do I calculate Sharpe ratio from P&L? Say I have a market-making strategy that trades intraday. I start with a flat position and finish flat too. I end up with a daily P&L$p_{today}$. Over a year of trading I get$\vec{p} = (p_1,\...
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What are the most common ways to model intraday trading volume, particularly for futures contracts? There are obviously a number of seasonal-type factors, like roll, economic news releases, time of ...
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### Library for interactive financial charts

For my recent project I am looking to build a software capable of visualizing financial charts in a dynamically and interactive matter. The workflow is as follows: I gather data from my data ...
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### How to convert trasaction log to bid-ask ticks

I have data from exchange in transaction log format that indicating: price volume timestamp That element indicating that timestamp transaction was made on price of size volume. My question is how ...
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### Binary options and European option is similar?

European options and binary (digital) options is similar? How apply the Black & Scholes formula on binary option?
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### I want to optimize an equity portfolio for the four central moments can anyone help me with the problem formulation

Basically i am confused as to which formula to use for portfolio skew and kurtosis and how to use the same in the optimization problem. I would also like to know the options available regarding the ...
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### Cross validation of a garch model

Suppose I divide a time series into 10 sequential time windows, where each window contains 1000 data points. I want to do test 5 different garch models using cross validation. So for each model, I ...
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### Portfolio risk decreased by increasing share of riskiest asset?

In Parker's The Economics of Entrepreneurship he explains how certain theoretical models predict seemingly bizzare things (e.g. people becoming more risk-averse resulting in them taking riskier jobs) ...
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### Understanding the concept of Martingale pricing

I am a bit confused about how to formulate a problem where I have to price an option on a stock. Many papers say that stock prices are best modeled using a geometric Brownian motion (GBM), and I ...
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### How to explain the path dependency in binomial tree model to price options?

I'm new to quantitative finance, so I'm confused with the so-called path dependency in binomial tree model. Originally I thought the path dependency exists because in binomial tree model, we will ...
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### Dividend Index Futures

My question is dealing with the proportionality between Dividend Index Futures prices and Index prices. Indeed, we in the past we used to do a simple regression between these variables and use the ...
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### How to synthesize a futures spread option?

Is it possible to synthesize a futures spread option using only the options on the spread's underlyings? If so, how? If not, is there another way? As an example, please show me how to synthesize ...
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### Analysing FX Data

When analysing currencies, the data always comes in pairs so it is hard to normalise a multivariate time series of data e.g. if I have GBPvsUSD, EURvsUSD and CADvsUSD then changes in the US economy ...
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### what's the difference between Peak-Load pricing and price discrimination?

i just don't get it. Peak-load pricing wiki page gives example: in public goods such as public urban transportation, where day demand (peak period) is usually much higher than night demand (off-...
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### Interpretation of cross-correlation matrix when one sample distribution is not normal

I am looking at the variance of (log) price changes in securities vs. the amount of social media discussion about them. I'm not interested in building a model. I'm just looking to see if there is a ...
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### Risk and Reward in practice

My question is a bit philosophical. As a risk manager I often have to tell portfolio managers to reduce risk (e.g. due to VaR limits or exposure limits). Then usually the discussion arises that if ...
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### moody's credit ratings for senior unsecured bonds

Can 2 senior unsecured bonds from the same obligor have different moody's credit ratings? Or do they both have to have the same rating because they are in the same capital structure? Thanks
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### converting US tickers into Reuters RIC [duplicate]

I have a large list of US equity tickers such as: "GIRO", "ITUB", "BITA" etc and I would like to convert them into their corresponding RIC codes. Do you know how can I do it? I have access to ...
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### the law of comparative advantage and exchange rate

I'm reading Steven N. S. Cheung 's "Economic Explanation" (2001). In vol 2 ch 2 section 2, he mentions Comparative Cost, or "the law of comparative advantage". after quoting the britain/spain clothes/...