All Questions
3
votes
4answers
390 views
How to optimize a portfolio under *both* maximum diversity ratio and minimum variance
I have a follow-on question to questions that appeared here and was not sure if the right way was to ask in the comments or post a new question.
My question is: how can I optimize a portfolio to suit ...
-3
votes
0answers
20 views
Why are call options needed? [duplicate]
My question is actually less ambitious and more specific then the title may have lead you to believe.
Suppose the interest rate is $25\%$ you have a stock at time zero price of $S_0=50$ and at time 1 ...
5
votes
5answers
584 views
Mapping symbols between tickers, Reuters RICs and Bloomberg tickers
Is there any known solution (preferably open source) to map between ticker symbols, Reuters and Bloomberg symbols. For example:
Ticker: AAPL
Reuters: RSF.ANY.AAPL.OQ
Bloomberg: AAPL US Equity
...
4
votes
5answers
500 views
Call vs. Put Option
I have two interrelated questions that have been bothering me for some time. I have read all the stuff online and it still doesn't make sense to me:
Let us assume:
0% interest rate (both hedge ...
12
votes
1answer
257 views
Parameter estimation of Ornstein–Uhlenbeck and CIR processes
I would like to estimate Ornstein–Uhlenbeck process' parameters via Kalman filter.
My process is the following one:
$\text{d}x_{t}=\alpha(\theta-x_{t})\text{d}t+\sigma\text{d}W_{t}$
I'm interested ...
6
votes
1answer
110 views
characterization of coherent risk measures
Suppose we are given a coherent risk measure $\rho:L^0\to\mathbb{R}$. Our probability space is taken finite, i.e. $\Omega:=\{\omega_1,\dots,\omega_n\}$ and carrying a probability measure $P$. With ...
-1
votes
2answers
107 views
What's the first time-integral of price called?
In general I'm wondering about the names of time-derivatives of price.
E.g. in physics the first few time-derivatives of position are:
f(x) = displacement
f'(x) = velocity
f''(x) = acceleration
...
5
votes
0answers
55 views
VaR for portfolio of funds
Let's assume we need to calculate a 1-day VaR for a portfolio of funds. Funds are traded, they can be bought and sold every day. We know exactly what the assets in each fund are. What is the right way ...
6
votes
3answers
6k views
What is the difference between Option Adjusted Spread (OAS) and Z-spread?
I am preparing for the CFA level 2 exam, I got confused by the concept Z-spread and OAS.
When a call option is added to a bond, since it is not favorable to the bond buyer, they would require more ...
2
votes
3answers
414 views
How to annualize dividends paid at varying intervals?
I am attempting to write a function that will calculate the annualized rate of return for individual dividends made by illiquid investments. These dividends are paid at varying intervals and the ...
11
votes
4answers
5k views
Why are GARCH models used to forecast volatility if residuals are often correlated?
The answers to this question on forecast assessment suggest that if the sequence of residuals from the forecast are not properly independent, then the model is missing something and further changes ...
3
votes
2answers
157 views
If the distribution of returns in symmetric, why not use a coin toss, small risk & high reward?
If the distribution of returns is symmetric then why not
use a coin toss to decide whether to buy or sell
Calculate the average velocity of the market (ATR - in technical analysis)
Place a stop ...
3
votes
1answer
100 views
Replicating strategy in the Black-Scholes model
I have a two-asset Black-Scholes model for a financial market:
$dB_t=B_t r dt$
$dS_t=S_t(\mu dt+\sigma dW_t)$
I introduce a European claim $\xi=max(K,S_T)$ with maturity $T$, for some fixed $K$. I ...
1
vote
1answer
127 views
Cointegration tests
I'm trying to figure out how to perform cointegration tests in R between 2 time series. I'm using po.test from the package ...
23
votes
4answers
916 views
Are there any new Option pricing models?
Back in the mid 90's I used the Black-Scholes Model and the Cox-Ross-Rubenstein (Binomial) Model's to price Options. That was nearly 15 years ago and I was wondering if there are any new models being ...
2
votes
4answers
487 views
Which brokers offer a Python stock trading API?
I would like to automate my trading strategies.
My strategies are not high-frequency and are written in Python.
I have a trading account in Interactive Brokers, and I know some non-official Python ...
-1
votes
1answer
73 views
Quality of GAINDATA timestamps
Does anyone have a view on the quality of the timestamping of GAINCAPITAL's free historical data.
There is non-FX data there and I wonder if the timestamps are in sync?
6
votes
7answers
2k views
Option trading API other than Interactive Brokers
I'm looking for an options broker that provides an execution API.
I'd like to ideally test on a papertrading version of it before connecting to a real execution engine. I know IB offers that, but they ...
3
votes
2answers
333 views
price of a “Cash-or-nothing binary call option”
I'm stuck with one homework problem here:
Assume there is a geometric Brownian motion \begin{equation} dS_t=\mu S_t dt + \sigma S_t dW_t \end{equation} Assume the stock pays
dividend, with the ...
1
vote
2answers
164 views
How is historical data for forex collected or computed?
I'm looking at four sources of forex data, as compiled in the question, What data sources are available online? And I think I must be misunderstanding something, perhaps something fundamental, but I'm ...
1
vote
2answers
288 views
Early execise of American Call on Non-Dividend paying stock.
Let us consider an American call option with strike price K and the time to maturity be T. Assume that the underlying stock does not pay any dividend. Let the price of this call option is C$^a$ today ...
6
votes
0answers
92 views
Is Unexpected Loss ever used in Basel II?
In Basel II, EL is useful. It's calculated as
$$EL = PD \cdot EAD \cdot LGD $$
in advance IRB (internal rate-based approach),
Correlation
$$R = 0.12 \frac{1 – e^{-50 \cdot PD}}{1 – e^{-50}}
+ 0.24 ...
3
votes
1answer
96 views
When the Inverse Correlation between the SPX and VIX breaks down
As we all know the S&P and its implied vol, the VIX, generally move in opposite direction. To a large extent, the correlations makes sense. IV is one of the main drivers of the price of options, ...
3
votes
0answers
44 views
Optimal mortgage rate strategy
When buying a mortgage, you can choose to "lock in" a rate at any point within 60 days of your closing date. Once locked in, you can't revert.
This makes it a secretary problem - in the traditional ...
13
votes
9answers
3k views
Which brokers offer a .NET stock trading API?
I'm trying to make up my mind and choose a broker, however much of my choice depends on the trading API offered.
I'm definitely not interested in FIX solutions and I'd very much like a .NET ...
3
votes
1answer
62 views
Desired portfolio volume
I am working on a toy model, in part of which an investor has to decide (based on some utility theory) how much money to invest in a given portfolio. For simplicity, assume that the portfolio is ...
1
vote
0answers
82 views
Market Exposure and Hedging
Normally the Market exposure associated with your stock/portfolio is your delta for that stock/ portfolio. Basic idea of hedging involved here is buying/selling respective futures depending upon ...
5
votes
0answers
82 views
How to prove that markets are incomplete under the Stochastic Volatility model?
Has anyone ever formally proved that Markets are incomplete under the stochastic volatility model?
I know that if there are more random sources than traded assets, then the market is incomplete but ...
5
votes
2answers
151 views
Best tool to generate cashflow diagrams
I often have to generate cashflow diagrams.
I was wondering if anyone has a good tool to generate them in either $\LaTeX$ or a picture?
0
votes
0answers
44 views
R Outputs from Johansen test. Linear combination still not stationary?
I am trying to see if house price is cointegrated with interest rate, per capita income and rental vacancy rate and got the following output from ca.jo in R:
...
1
vote
1answer
103 views
Add transaction costs to prediction
An algorithm predicts price movement by some certainty and it invests proportional to the confidence level. Predictions range from -1 to +1, -1 meaning sell for a value of ...
0
votes
0answers
48 views
Exact value of mean reversion rate knowing terminal value of the process
Let you have the following mean reverting process:
$\text{d}x_{t}=a(\theta-x_{t})\text{d}t$,
where the diffusion term is absent, that is this process is not stochastic.
Let you know the value of ...
6
votes
4answers
493 views
Threshold calculation for buying a mean-reverting asset
I am trying to figure-out an optimal policy for buying a unit when its price follows a mean-reverting price process (Ornstein–Uhlenbeck), when I have a finite time deadline for buying the unit.
I ...
3
votes
0answers
73 views
Is it random walk?
I would like to ask a question about random walk. Campbell, Lo & Mackinlay defined the random walk, in the following way (RW3):
$$
cov[f(r_{t}),g(r_{t+k})]=0,\qquad k\neq0
$$
for all $f(\cdot)$ ...
-4
votes
0answers
61 views
Why was SSF and Futures on Stocks Banned in US Until Recently [closed]
I have heard that Futures on Stocks were not allowed in US until recently. What is the rationale behind this?
5
votes
3answers
442 views
How to use Itô's formula to deduce that a stochastic process is a martingale?
I'm working through different books about financial mathematics and solving some problems I get stuck.
Suppose you define an arbitrary stochastic process, for example
$ X_t := W_t^8-8t $ where $ W_t ...
1
vote
1answer
60 views
What are the differences between CFD and SSF?
What are the intricate differences between SSF and CFD?
The similarities are that both take into account interest and settled daily thus looks more or less the same pima facie.
4
votes
1answer
112 views
Covariance of brownian motion and its time average
It's a question pertaining to the correlation of a log asset process (following BM) and its time average, to put it into form, if
$$X(t)=\mu t+\sigma W(t)$$
then
$$ ...
3
votes
0answers
60 views
Overnight Index Swaps
Just a very quick general question regarding the OIS market. Is it common place on termsheets to state a PV Notional and additionally a FV notional, if so what is the purpose of this and does market ...
-5
votes
0answers
28 views
Quantitative Finance in Asset Allocation [closed]
I want to study on this topic "Quantitative Finance in Asset Allocation" who can guide me further? (introduce me some perfect books)
Thank you.
-6
votes
0answers
78 views
Compute a time series of daily volatilities in R [closed]
I want to use the ewma algorithm to compute a time series of daily volatilities. My $\lambda=0.97$. The start volatility is from the first $50$ returns. I want to take a vector of returns, a decay ...
5
votes
1answer
163 views
Profiting from price discrepancies between stock exchanges
Here is an interesting video by Nanex: http://www.youtube.com/watch?&v=rB5jJuMP84E
Perhaps some of you have already seen something similar. It is an animation of the order routing. It shows 1/2 ...
-5
votes
0answers
95 views
Basic Trading Strategies based on mean-reversion / momentum [closed]
Can anyone give me some basic trading strategies which based on the theory of mean-reversion (like the bollinger band strategy)? Also, is there any basic trading strategy based on momentum trading? ...
4
votes
1answer
75 views
pricing of heat rate-linked derivative
It's a simplified model.
Suppose $U_t$ is a random variables subject to Lognormal($x_1$, $z_1^2$)distribution. $V_t$ is a random variables subject to Lognormal($x_2$, $z_2^2$)distribution. Suppose ...
0
votes
1answer
104 views
Grokking Stochastic Oscillator for Stocks
In software, I'm trying to implement the Stochastic Oscillator (see here), and I'd like to figure out a few things.
Let's say I use standard inputs 14, 3 and 3. If my 14 is for intraday ticks, what ...
2
votes
2answers
117 views
Quadratic variation quesiton
Here I have this question
(i) state Ito's formula
(ii) hence or otherwise show that
$\int^t_0B_s dB_s = \dfrac{1}{2}B^2_t -\dfrac{1}{2} t$
(iii) define the quadratic variation $Q(t)$ of Brownian ...
11
votes
5answers
681 views
What are the best Journals & Conferences in Quantitative Finance?
What are some of the most prominent journals, conferences and publishing venues in Quantitative Finance research? Where can I find information more information about them? (e.g. impact factor and ...
3
votes
0answers
57 views
How to simulate a Geometric Binomial Process with state/tie dependent increments?
I want to simulate a geometric binomial process with state/time dependent increments.
So the model is given by
\begin{align}R_t=\frac{X_t}{X_{t-1}}\end{align}
\begin{align}P(R_t=u)=p(X_{t-1},t) ...
9
votes
0answers
83 views
rugarch: Joint estimation leads to different results
I want to fit an ARMA-GARCH model to my data using rugarch package in R.
First of all, I look at the acf and pacf:
...
1
vote
0answers
31 views
Is there any reasonable way to short-sell Bitcoin [migrated]
It is not an official currency (yet?) but definitely has a market, and as such, I might be intrested in short-selling some. Are there any reliable, way to bet against it?
