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I have a simple exotic option example but am unsure how to price it. Bob wants to buy* an option from me that will give him the right to sell (buy) a cup of water for $1.00 a year from now. He can ... 0answers 4 views API-based equity screeners? I know there are APIs from different brokers that allows you to trade and also obtain information about specific companies, but I wonder if there are equity/asset screeners that are API-based and can ... 1answer 454 views QuantLib and exact numerical simulation I've just downloaded quantlib and started playing around with it, and it looks like it's designed primarily to use Euler discretizations for everything -- so far as I can tell, there's not even a ... 3answers 1k views VaR implementation using quantlib? I am thinking of writing a VaR framework for my existing system, using quantlib to do the bulk of the calculations. Despite several searches, I have not as yet come across a quantlib VaR ... 3answers 1k views Quick way to check what 'tape' a stock belongs to? For the SIP feeds, there is the CTA and the UTP plan and they cover Tapes A,B and Tape C respectively. Is there an easy way to check on google what tape a stock would belong to? Particularly when it ... 1answer 50 views is there an accepted method for quantifying risk of inaccuracy of nascent trm systems? Have a somewhat meta question here. I am part of a trading risk management implementation project. I also manage day to day risk reporting to management and the trading desks. Our implementation was ... 1answer 220 views Pricing options under restricted domain How would I price an option when the underlying security is unable to trade above a certain price? I assumed this would be as simple as restricting the limits of integration of the PDF to B (the ... 2answers 98 views Approximation of different volatilities Suppose I model the forward swap rate lognormal $$dS_t = \sigma_{ln}S_tdW_t$$ On the other hand we could model it simply by a normal assumption: $$dS_t = \sigma_{n}dW_t$$ I would like to know if ... 0answers 22 views Game theory and antagonistic games in trading In one of the topic here, particularly in the comments, i saw a link to the page describing connection between Antagonistic Games and finances but i cannot find it now and would appreciate if somebody ... 1answer 78 views forward vs spot simply-compounded spot interest rate Question about forward vs spot simply-compounded spot interest rate.Some definitions$P(a,b)$a zero coupond price at time$a$and maturity$bL(a,b)$simply compounded spot interest rate set at ... 1answer 92 views Why most of apple stock price since 10years have been gained overnight? I've been playing with stock data and I've discovered a terrible truth : in 10 years apple stock price passed from roughly 3\$ to 100$. However this gain isn't due to intraday price variation ... 8answers 165 views Why would there be a positive risk-free rate? Most financial models include a risk-free rate or risk-free asset. Why should there be such thing as a positive risk-free rate? I dont see why an asset would provide a positive (real) return if it ... 1answer 167 views How to price a Swing Option? I'm working in the commodity market and I've to price Swing Options with MATLAB, preferably with finite element. Has anyone already priced these kind of derivatives? I'm thinking about using the ... 1answer 60 views Different ways of portfolio optimization There are different ways to optimize portfolios: $$\max R^Tw\tag{1}$$ or $$\min w^T \Sigma w\tag{2}$$ and finally using a risk tolerance$\lambda\$: $$\min{(w^T\Sigma w-\lambda R^T ... 0answers 20 views Which certificate course is better for risk analytics professional or willing to have a career in risk management? [on hold] Which certificate course is better for risk analytics professional or willing to have a career in risk management ?. FRM certification versus PRM certification. 0answers 41 views Create Two Correlated Random Series [on hold] I am trying to create two random return series, with defined mean return, variance (standard deviation of return), and correlation. I am using the below method, by imposing the parameters on X1 and ... 1answer 404 views Testing the validity of a factor model for stock returns Consider the following m regression equation system:$$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 ... 1answer 33 views What is Equity Asian Hybrid? As listed in http://www.vectorrisk.com/Views/Solutions/ProductList.aspx What's an Equity Asian Hybrid? Any references? What is exactly a hybrid product? 10answers 33k views How can I go about applying machine learning algorithms to stock markets? I am not very sure, if this question fits in here. I have recently begun, reading and learning about machine learning. Can someone throw some light onto how to go about it or rather can anyone share ... 1answer 47 views What is some prerequisite book that can help me to read “mathematical methods for financial markets” What is some prerequisite book in mathematics or finance that can help me to read "mathematical methods for financial markets"? I found a lot of difficulties when try to start to read the PDF of this ... 3answers 932 views How does one analyze diversification if stock prices follow a Cauchy distribution? How does diversification actually lead to less variance in a portfolio? I'm looking for a formal reason why this is the case. There are a number of explanations I have been able to find, but they make ... 1answer 61 views Pricing a bond contract from the yield curve When giving a particular class in financial mathematics for a student I saw a problem in a list of exercises that says: How to calculate the price at 15 December 2010 of a bond paying a coupon of ... 2answers 60 views Predict Futures Prices based on weather + agricultural data I’m working in the area of Data Mining and have come up with the following idea for my Masters project.The text may not be the best structured but it’s a working draft to give you a quick idea. ... 6answers 221 views Why should we expect geometric Brownian motion to model asset prices? Disclaimer: I am a complete ignoramus about finance, so this may be an inappropriate forum for me to ask a question in. I am a mathematician who knows nothing about finance. I heard from a popular ... 1answer 180 views Is it possible to model general wrong way risk via concentration risk? General wrong way risk (GWWR) is defined as due to a positive correlation between the level of exposure and the default probability of the counterparty, due to general market factors. (Specific wrong ... 1answer 71 views Stress Testing Methods I'm working on the following task: Given quarterly data: a time series representing the 1-year realized (10 years of data) rates of default on a portfolio of mortgages a slew of ... 1answer 42 views Two assets with the same mean and standard deviation - Would there be any benefit? [on hold] If I have two assets in a portfolio with the same standard deviation and mean and the correlation between the assets is 0, theoretically could there be a situation where it would be beneficial to ... 1answer 37 views Does the correlation of matrices has explanatory power when building a pattern recognition model? I'm using 8 different variables (with daily observations) with the purpose to compare different months across the historical data. For that purpose I calculate the correlation between each month and ... 1answer 99 views Explain drop in Correlation between two time series in consecutive periods I have a time series for a security list with 2 parameters calculated for each time period. For example, for a stock XYZ, I have Param1 and Param2 calculated over various time periods stacked against ... 1answer 166 views what is a typical way forex brokerages can provide cheap leverage for their customers? I'm not very well read in the area of high finance but I'm curious how forex brokerages are able to provide the backing for leverage that they can provide to customers. Is it possible to do this ... 1answer 54 views In what kind of stochastic process Ito's lemma is adopted? I have been told that Ito's lemma serves as the stochastic calculus counterpart of the chain rule. And yet again my tutor mentioned it is not used for all stochastic processes. Is this statement ... 1answer 48 views Analog - Pattern Recognition model using KNN I'm building a pattern recognition model for my master thesis. The idea is to build a framework with some Macro variables (long/short term rates; rates differential; equity; fx; vix) in order to find ... 1answer 83 views Solving Black-Scholes PDE using Laplace transform I'm trying to obtain the Laplace transform of Call option price with repect to time to maturity under the CEV process. The well known Black scholes PDE is given by$$ ...
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Girsanov theorem seems to have many different forms. I've got a problem matching the form in wiki to the one in Shreve's book, due to the difficulty of quadratic variation calculation. Below is the ...
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How to work out weights for a portfolio based on an inverse ratio with positive and negative values?

I am trying to work out how to determine weights for the assets in order to form a portfolio. The ratio I am using is EV/EBIT, hence the smaller the better. The problem is I don't know how to handle ...
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Scale of Market Quakes Computation

I would like to reproduce the results in the paper "The scale of market quakes", from T. Bisig, But I am getting stuck at the computation of the Fourier Coefficients in equation (4). They are defined ...
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What data should be used for regression-based model backtesting?

I ran regressions using historical valuation data and now want to backtest the models I came up with. Are there any issues with using the same historical data set for the backtest that I need to be ...
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What is the best way of updating data while using Empirical Mode Decomposition to analyze

I have a question about EMD updating new data points. For an entire time series, from beginning to the end, the EMD preforms quite good using the cubic spline function. The problem happens when new ...
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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 ...
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Is this a reasonable approach to determine the relative importance of valuation factors?

I am trying to come up with a measure of relative importance of a number of valuation factors. I am wondering whether correlation coefficients can't be used for determining this. More on the issue: ...
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How can I calculate Fama-French betas for a particular stock?

For a particular stock, what's the simplest way to calculate betas for the Fama-French factors SMB and HML?
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How to combine Gaussian marginals with Gaussian copula to obtain multivariate normals?

in the book "Numerical Methods and Optimization in Finance" I red the following: "Combining the Gaussian copula with Gaussian marginal gives a fancy way of expressing multivariate normals. However, ...
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Capital Allocation for Portfolio of Multi-Strategy and Multi-Instrument

I would like to know if there is a way (or theory) to manage a multi-strategy, multi-instruments portfolio that would calculate the optimal weight to allocate capital for each combination of strategy ...
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Why does the price of a convertible bond go up if the CDS spread goes up?

Looking at convertible bond prices in a commercial pricing tool, which is based on a model of Black-Scholes volatility plus a Poisson process of jump to default, I noticed that increasing the spread ...
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Why is two-factor model so popular for bond futures?

Given that which bond in the basket becomes CTD depends massively on idiosyncratic moves among different bonds, should we not be always using N factor model instead of 2 Factor model? By using only ...
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Logic behind Gordon Growth Model in a DCF analysis?

Sorry, I wanted to ask this on the finance/money forum, but they don't support LaTeX there. Let's say we are valuing a company using the DCF methodology with a 5-year projection period. We project ...
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multiperiod optimization using R

I'm interested in multistage optimization problems. Are there any good R packages around to solve such problems over time? I'm not at all an expert in it, so maybe someone knows a good paper / lecture ...
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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 ...
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Why is the duration of a bond is important?

I know what it measures, but now in the age of computers why is it useful? If the yield changes, we could just simply plug the new yield into a program, or excel or something like that, and calculate ...
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How to select optimal betting strategy from backtest?

I have written a model for predicting the winner of UFC fights. My model calculates the probability of each fighter to win a given match. I have back tested the model and found it to be very ...

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