# All Questions

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### How to show that this weak scheme is a cubature scheme?

Weak schemes, such as Ninomiya-Victoir or Ninomiya-Ninomiya, are typically used for discretization of stochastic volatility models such as the Heston Model. Can anyone familiar with Cubature on ...
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### On the interface between Quant finance and actuarial-science/insurance-math

Actuaries (at least in Europe) are frequently severily lacking in quant finance topics. At best they are familiar with B&S model. People going into quant finane or striving to become a quant on ...
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### 2-state HMM / ARMA process?

I have issues with this problem: Let $\{X_t, t\in \Bbb N\}$ be a 2-state stationary Markov chain, with transition $M$ (and $M(1,2)\neq 0 \neq M(2,1)$), let $\{W_t, t\in \Bbb N\}$ be a strong Gaussian ...
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### Algorithm to fit AR(1)/GARCH(1,1) model of log-returns

I am fitting numerically an AR(1)/GARCH(1,1) process to index and stock log-returns, $r_t=\log(P_t/P_{t-1})$, where $P_t$ is the price at time $t$, and thus far am not clear on where the observed log ...
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### Applications of distance correlation

This question mentions distance correlation. Where has this concept been applied to financial data and provided new insight? Do you know any examples or references?
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### Time series analysis on illiquid price data?

Say for example I have the following company in some specialized industry: A - Company that is about to be listed in Exchange 1, i.e., no price history B - Company that produce similar products as ...
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### Basket option density in BS model

Let X and Y be two GBM’s, they have each a univariate log-normal distribution for some time t, that is $X_t\sim{LnN(µ_x, σ^2_x)}$, $Y_t\sim{LnN(µ_y, σ^2_y})$ and $Z_t=[X_t,Y_t]\sim{ MvLnN(μ, Σ)}$ ...
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I am trying to find a formula for the skewed-t VaR. For example the VaR formula for a t-distribution is $$\sqrt{\frac{df-2}{df}} \times \Sigma{t} \times \mbox{quantitle}(t-\mbox{dist}, 0.01) + \mu ... 0answers 159 views ### Covariance estimation Shrinkage was much en-vogue before RMT took everybody's attention, however the latter also showed its limits. A plethora of other estimators has been presented, but I could not yet spot a golden ... 0answers 136 views ### Distribution of hitting time of the integrated CIR process If an increasing process X_t has a known Laplace transform \mathbb{E} e^{-s X_t} = m_t(s), define its hitting time \tau to some level B to be$$ \tau = \inf\{ u > 0 : X_u \geq B \}. $$Can ... 0answers 200 views ### Stress testing covariance Going one level beyond stressed scenarios, to parameters e.g. for a VaR measure: what are the most common approaches for stressing a covariance/correlation matrix, especially taking portfolio exposure ... 0answers 1k views ### VaR model Unconditional Coverage Tests: Is this extension of Kupiec POF test correct? Background: Kupiec P. in 1995, published paper "Techniques for Verifying the Accuracy of Risk Management Models" on Journal of Derivatives, v3, P73-84, it's a Unconditional Coverage Tests designe for ... 0answers 500 views ### option chain data visualization, sunburst I think option chains are not represented in the best way. With more and more options products coming out and trading on the various exchanges, I see vendors struggling to keep up with a good way to ... 0answers 165 views ### Basel CVA VaR with R/WWR In Basel III the CVA VaR “is restricted to changes in the counterparties’ credit spreads and does not model the sensitivity of CVA to changes in other market factors, such as changes in the value of ... 0answers 352 views ### Alternative ways to understand time-varying comovement between two time-series? I have been looking into ways to better understand how the dependencies/correlations/etc between two time series can vary over time. I first thought about using a Kalman/particle filter over a ... 0answers 148 views ### Testing for stock market herding over short periods The literature has well established methods for testing stock market herding over a decent time window. Are there any ways that have appeared in the literature to test for stock market herding over ... 0answers 285 views ### generating (or tracking) the DJUBS commodity index Dow Jones and UBS publish one of the most popular commodity index families, the Dow Jones-UBS Commodity Index and its subindices. They provide a detailed manual describing the composition of the index ... 0answers 594 views ### Alternative to Block Bootstrap for Multivariate Time Series I currently use the following process for bootstrapping a multivariate time series in R: Determine block sizes - run the function b.star in the np package which produces a block size for each series ... 0answers 28 views ### Transition densities in the Heson model Knowing the Characteristic function \Phi_{T,t} = \mathbb{E} [ e^{i u S_T} | S_t, V_t] (or equivalently, the Laplace transform) of an affine process, it's possible to know the distribution of the ... 0answers 67 views ### Is Least Median Squares (LMS) regression commonly used in Finance? Least Median Squares is often argued to give more stable results than does OLS. Whereas in OLS one minimises the mean of squared residuals, in LMS, one instead minimises the median of squared ... 0answers 122 views ### Integral-differential equation for forward rates I am struggling in this question: Let P(t,T) denote the price of a zero-coupon bond (with marturity at time T) at time t \in [0,T]. As usual, at time t for maturity T, the forward rate is ... 0answers 252 views ### A model to stochastic hazard rate and CDS spread term structure I'm interested in the term structure of CDS spread. It's known that the Market CDS rate (fair CDS spread or T-maturity spread) of a CDS contract initiated at s, maturity T and recovery function ... 0answers 134 views ### What is the most convenient data structure for backtesting a model of futures options prices? I have an empirical model for the dynamics of futures prices in a particular market that I have implemented using a long series of the front five contracts. (I account for the roll in my model.) I ... 0answers 143 views ### Calculating volatility of inhomogeneous time series I am reading an article by Zumbach and Müller whose name is Operators on Inhomogeneous Time Series. This is interesting in general, but my main goal is to learn a good and efficient method to ... 0answers 96 views ### Does GARCH derived variance explain the auto-correlation in a time series? Given a time series of u_i returns where i=1 to t. \sigma_i is calculated from GARCH(1,1) as \sigma_i^2=w+\alpha u_{i-1}^2 +\beta \sigma_{i-1}^2 . What is the mathematical basis to say that ... 0answers 665 views ### Calculate interest rate swap curve from Eurodollar futures price So I was reading Robert McDonald's "Derivatives Markets" and it says Eurodollar futures price can be used to obtain a strip of forward interest rates. We can then use this to obtain the implied ... 0answers 154 views ### Graduating Quantitative Finance (please don't move it to meta immidiately) Seeing how very few actually read the Quant Finance meta I intentionally post it here on the main site. To the more powerful admins: could you leave it here for a day or two and move it to meta ... 0answers 43 views ### What type of interpolation should be used in key rate perturbation models? When perturbing a key rate in order to assess sensitivity of portfolio value, what sort of interpolation is standard? A book I am looking at says linear, but this seems pretty unrealistic to me--and ... 0answers 213 views ### Algorithmic Trading Model Calculation and Stale Data I'd like ask everyone a more concurrency programming but definitely quant-finance related question. How do you deal with staleness of data in market hours as quote ticks are streaming and your model ... 0answers 115 views ### Finding the dynamics of a dividend paying asset under arbitrary numeraire Assuming I have a dividend paying asset S with dividend process D. Now I would like to use the bank account process B as numeraire and determine the dynamics of S under the the corresponding ... 0answers 249 views ### Optimization: Factor model versus asset-by-asset model In portfolio management one often has to solve problems of the quadratic form$$ w^T \Sigma w + w^T c \rightarrow Min  with portfolio weights $w \in \mathbb{R}^N$ a constant $c \in \mathbb{R}^N$ and ...
Consider the setting of mean-variance portfolio optimisation: $n$ assets with expected returns $\overline{r}_1,...,\overline{r}_n$ and standard deviations $\sigma_1,...\sigma_n$. For a certain fixed ...
I am trying to find out Historical Alphas of a bunch of fund returns ${F_i}$ by Using Regression Model$(stepwise)$ with regressors as its underlying exposure-returns(risk-free rate subtracted) i.e. ...