# All Questions

50 views

### Black Scholes vs Binomial Model

I'm trying to confirm my understanding of the 2 models. It is my understanding that the black-scholes is a special case of a binomial model with infinite steps. Does this mean that if I were to start ...
58 views

### Is there a Newey West like correction for overlapping data correlation estimates?

I already posted a related question a while ago but was unsure if I should post within the same question. I want to estimate mulitperiod asset return correlations and test if there are significant ...
218 views

### Robust Returns-Based Style Analysis

Sharpe's Return-Based Style Analysis is an interesting theory but flawed in practice when working with long-short funds or funds that are changing strategies over shorter periods of time due to the ...
4k views

### Should I use an arithmetic or a geometric calculation for the Sharpe Ratio?

What are the advantages/disadvantages of using the arithmetic Sharpe Ratio vs the geometric Sharpe Ratio? Is one more correct? Or is one better in certain circumstances?
2k views

### Should Sharpe ratio be computed using log returns or relative returns?

I am trying to reconcile some research with some published values of 'Sharpe ratio', and would like to know the 'standard' method for computing the same: Based on daily returns? Monthly? Weekly? ...
24 views

### How to calculate the expected value of a function of a standard brownian motion (Wiener process)

Have a problem regarding the expected value of the Wiener process inside a function, namely: Compute $E[cos(W_t)]$. To extend my question, what is the general method of computing these E´s when it ...
7 views

### Real returns vs. inflation as an independent variable

Assume a model like this, basically explaining stock market returns with a bunch of stuff: ...
23 views

### Effects of Fund manager reputation, track record, and skill on funds returns and capital flows

I am compiling a list of all studies that examine the effects of fund manager reputation, track record and skill on fund returns and capital flows across both mutual funds and hedge funds. The purpose ...
42 views

### Were can I find Historical Interest Rate Data?

Where can I find American historical Savings Account interest (Bank) rates? If you can, please attach corresponding links.
19 views

### roll dice and market on it [on hold]

Roll a die repeatedly. Say that you stop when the sum goes above 63. What is the probability that the second to last value was X. Make a market on this probability. i.e. what is your 90 percent ...
22 views

### GARCH(1,1) good fit found, how to predict one day volatility ahead?

I used SPY data to fit GARCH(1,1) in my model. My data starts from Jan, 2000 until Dec, 2013. I compared the volatility using runSD on the 21 rolling window and GARCH(1,1). It looks a pretty good fit ...
415 views

### How is the default probability implied from market implied CDS spreads for CVA/DVA calculation?

From point 38 on P.17 the default probability can be implied from market implied CDS spreads. "Macro Surface" method is mentioned, but I cannot get any clue of what it is? Where do I get the acedemic ...
16 views

### Calculating instantaneous forward rate from zero-coupon yield curve

I have a big dataset containing zero-coupon bond yields with different relative maturities. I fix a time horizon on my dataset and I want to calculate instantaneous forward rate. I'm going to write ...
22 views

### What are the good book to understand economics? [on hold]

I am currently studying managerial economics by W. Bruce Allen. The book is good. Are there any good book with quizzes , that makes economics sweeter? Books that relate to real world facts and figure ...
13 views

### “Equivalent” data sets despite different numbers

Are the historical data sets of short term treasury bill rates considered the same as the historical data sets of savings account interest rates because by definition they are both risk free rates of ...
141 views

### selecting test data for neural networks

I have been working on a neural network based on certain technical indicators. As people familiar with neural networks would know after developing a hypothesis, the developer is also supposed to ...
17 views

### PCA related Query

I am currently working on a project in grad school where I am using PCA Approach. I have 4 stocks. I used R to generate Eigen Values, Eigen vectors Eigen Values Number Value Diff ...
11 views

### FX Rate dynamics

Let's suppose USD/EUR price in USD follows a GBM with $$dS_t = rS_tdt + \sigma S_tdW_t$$ What process does EUR/USD follow in EUR?
16 views

### Risk neutral measure for jump processes

How can I construct risk neutral measure for option price if active price form is: $$S(t)=S(0)\left[\exp{σW(t)+(α-βλ-1/2σ^2)t+Q(t)}\right] ?$$ Here $W(t)$ is a Brownian motion and $Q(t)$ is a ...
103 views

### Why are short expiries associated with more pronounced volatility skews?

I've noticed that for a given strike price, the shorter expiration dates of options have more pronounced volatilities why is that?
120 views

### How to perform Empirical Mode Decomposition?

I am trying to use the EMD applied to EURUSD open price to train a machine learning algo (RVM). I have run only once the EMD on my training set and once on the training+test set. The results on the ...
41 views

### if technical analysis rules for predict stock prices is unique for all cases, why should we learn neural networks? [on hold]

Is there any neural network out of the box tool that was already learned all technical rules by feeding many stock trading data?
52 views

### Portfolio optimization with Portfolio CVaR Constraint

I wanted to optimize a portfolio based on a portfolio-wide CVaR constraint (i.e. $CVaR_p \geq 0.08$). Unfortunately, I only find solution that minimizes the entire CVaR of the Portfolio. Do you mind ...
30 views

### Financial Engineer as a career [on hold]

I'm now studying in Bachelors in economics.Can I become a financial engineer with this degree?? Why or why not?? And Also what is the minimum GPA do I need to get to that program
17 views

### PWIQF excercise solution

I am software developer with no previous experience or knowledge in finance and have recently been starting to build my knowledge in this area. I am working through the book: Paul Wilmott Introduces ...
25 views

### How would you correct a GARCH model to deal with non mean reverting volatility?

I am currently attempting to model and forecast volatility of bitcoin but have not been able to find a GARCH model that fits the data appropriately. I've used tick data sampled at 1 hour intervals ...
30 views

### full tick and retail tick data feed difference

Full tick institutional data feed like elektron from reuters, how is it different from retail tick data feed & which charting softwares work with elektron data feed
49 views

### source for yahoo finance equities volume traded

I am looking at some academic studies regarding volume of stock traded. Yahoo Finance is used as the data source for volume. Does anyone know where the volume figure comes from? Is it a compilation ...
52 views

### Usage of Brownian Bridge?

I was recommended to read something about Brownian Bridge. Could someone familiar with BB give some recommendation? It was mentioned that BB benefits in 2 places BB could reduce the simulation ...
219 views

### Sampling problem in portfolio optimization

In a summary I am trying to do the following Bond Subset 1 : Get list of USD Bonds --> Filter out Bonds which have YTM > y% DUR > 10 Y etc. .. This gives us Bonds which we are interested in. So ...
54 views

I have some work to do on the drivers of government bond spreads - ie. across terms (not across governments) of the yield curve, say 5yr and 20yr bond spreads from the same government issuer - and am ...
28 views

### Markov switching model estimation

We are testing Markov switching models to forecast risk regimes, similar to the paper by Kritzman, Page and Turkington. We find that in some cases the Baum-Welch algorithm converges very slowly or not ...
23 views

### How does logging effect Quickfix performance?

I am using .net/c++ version of quickfix. How does logging effect Quickfix performance? If I disable logging to file, can it help to increase performance of quickfix? Thanks,
69 views

### American Swaption Pricing with Monte-Carlo method

I want to price an American swaption but I am not sure about what I am doing. Tree methods and PDE discretization seem difficult to adapt to a swaption. I am trying a Monte-Carlo approach. (in ...
231 views

### Testing the validity of a factor model for stock returns

Consider the following m regression equation system: $$r^i = X^i \beta^i + \epsilon^i \;\;\; \text{for} \;i=1,2,3,..,n$$ where $r^i$ is a $(T\times 1)$ vector of the T observations of the dependent ...
11 views

### Bank Reconciliation HW Question [on hold]

I'm not sure if this is the right Stack Exchange for this question. If it isn't I apologize. I have an Accounting project I've been working on. It's a bank reconciliation using data provided. ...
29 views

In a trading manual I got during a course, the value of the ATM Call-Spread is approximated by $CS_{ATM}=\frac{1}{2}StrD+(F-m)\times\Delta CS$ The lecturer skipped the part where he derived this ...
403 views

### Applicability of PCA to get historical volatilities to calibrate interest rates trees

My question in short is as follows: can I take main principal component of historical covariance matrix and use it as historical volatilities when fitting a binomial tree? Here's more detailed ...
14 views

### American Swaption Pricing with PDE discretization

So I am still trying to price an american swaption. (MC approach here: American Swaption Pricing with Monte-Carlo method) I've found in Paul Wilmott, The mathematics of financial derivatives, a PDE ...
12 views

### Engle Granger test returns a 0 in matlab, while correlation factor is .80+. Am I doing something wrong?

Engle Granger test is giving me a ans = 0. The correlation factor is: 0.8+ Does this imply the No cointegration hypothesis is true? i.e. as per my understanding that there is cointegration? I am ...
15 views

### Significance of Data

The following is a result I get from a pair trading model. I am trying to figure out the significance of the below but failing. Can someone help me out i.e. a resource or possibly an explanation on ...
53 views

### Budget Constraint in Sharpe Ratio Optimization

I am a math student and I am trying to understand the budget constraint in Sharpe Ratio optimization for portfolio design. Recall the budget constraint requires that the sum of the portfolio weights ...
375 views

### Are there any other standard rates term structure decomposition than PCA?

PCA is sometimes used to estimate components in the rates term structure. Are there any other standard method discussed in the literature or used in practice, what are their advantages and ...
754 views

### Lib for Arbitrage-Free Smoothing of Implied Volatility Surface?

I'm looking for an implementation of Arbitrage-Free Smoothing of the Implied Volatility Surface - Matthias R. Fengler. Does anyone know of any existing libraries that have implemented this paper? Any ...
28 views

### Java Implied Volatility Solving

After using RQuantLib and RCaller from Java I am desiring a bit more speed on my implied volatility calculations (for anyone who has used this knows it is quite slow). I need to price a large number ...
131 views

### Black Scholes well coded Python

I have some trouble with the following code. Some jump and a decentered path are present but it's not the case, normally for Black Scholes diffusion ! Is anyone see a problem in my code ? ...
48 views

### Dv01 of Eurodollar futures contract

Can anybody please explain in layman terms why the DV01 of a eurodollar futures contract is 25? I can mathematically calculate in different ways, but not able to convince myself, especially how is it ...
64 views

### HJM simulation problem

I'm trying to simulate a 3-factor HJM model. I got the algorithms from Glasserman book. In my case, I have $3$ maturity:$0.25y, 0.5y, 0.75y$. So my time grid is: $t_0=0,t_1=0.25,t_2=0.5,t_3=0.75$. ...