All Questions
4
votes
1answer
43 views
How to fix ARMA coefficients in fGarch package?
I want to fix certain coefficients in the ARMA equation of the garchFit command of the fGarch package in R?
E.g. consider:
...
5
votes
0answers
54 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 ...
1
vote
0answers
31 views
Sign Bias test output interpretation of rugarch?
I fitted an ARMA-GARCH process to my data and looked at the output:
...
3
votes
1answer
96 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 ...
2
votes
0answers
25 views
Interpretation and consequences of the Nyblom test in the rugarch package?
I fitted a garch model using rugarch of the r package and I got the following output:
...
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 ...
6
votes
0answers
91 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
94 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, ...
1
vote
1answer
48 views
Different results between Box-Ljung test and ARCHLM test?
I fitted a garch model using the rugarch package. The output (extract) is as follows:
Now I have trouble interpreting the results of Q-Statistics?
First of all to test the mean equation, we look at ...
0
votes
2answers
104 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
...
-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?
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 ...
2
votes
0answers
41 views
Confused about APARCH not a APGARCH?
I am wondering about the apARCH model:
As you can see here, it clearly has both terms which a garch model has. The aparch volatilit equation is given by
And the standard garch volatility equation is ...
5
votes
1answer
92 views
Is my VaR calculation correct?
I want to use a ARMA-GARCH process to calculate the value at risk.
I use the rugarch package of R.
First of all, I specify my model:
...
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:
...
0
votes
0answers
47 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 ...
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)$ ...
1
vote
1answer
102 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 ...
-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?
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.
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 ...
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
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.
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 ...
-6
votes
1answer
77 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
160 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? ...
0
votes
1answer
102 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 ...
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 ...
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) ...
4
votes
1answer
110 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)$$
then
$$ ...
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?
4
votes
0answers
113 views
Distribution of profit/loss for retail traders in FX
I've heard that 90% of retail investors in FX lose money. I want to analyze this in more detail.
Question: Is there some literature that describes the statistics of profit/loss for retail traders in ...
1
vote
0answers
47 views
mean variance minimizer
I need to use the lagragian multiplier to find the minimal martingale measure from the set of equivalent martingale measures. i formed the lagragian as L = $L(u(t,S(t)),\lambda) = ...
2
votes
2answers
116 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 ...
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 ...
-4
votes
0answers
39 views
Comparing Investments: Selling land vs. starting a business [closed]
I have a situation where I need to compare some investing alternatives.
We and my partners own a piece of land with high commercial value, that was bought 7 years ago. Now the real estate market ...
12
votes
1answer
256 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 ...
2
votes
2answers
92 views
RQuantLib, Hoadley and Bloomberg YAS: fixed rate bond pricing differences?
I'm trying to price a fixed rate bond one year from now on.
The bond is the PEUGOT 7 ⅜ 03/06/18, whose ISIN code is FR0011439975. I'm using such a specific example because in this way everyone can ...
3
votes
1answer
75 views
knowing the order of GARCH model
I want to ask if there is a situation to know the order of GARCH(p, q) from the result. For example, in the case of AR(p), one can know the value of p by plotting pacf(). In case of MA(q), one can ...
1
vote
2answers
195 views
backtesting options strategies in R
I would like to backtest an options strategy in R. I require the ability to delta hedge and rebalance to options in the portfolio at different frequencies (daily, monthly,etc.) What packages are the ...
2
votes
1answer
92 views
How does the CME set margin requirements on commodity Futures
I am trying to model margin requirements on various commodity futures, however it doesn't seem that the CME has released the formula they use to set these performance bonds. I am sure that they use ...
1
vote
1answer
54 views
When calculating CIP between EU and US, which interest rates data to use?
I am wondering which data to use to test the Covered Interest Rate Parity between Europe and the United States. Recap that for the CIP to hold, it should mean that
F/S = (1+r)/(1+r*) where
F = the ...
1
vote
1answer
62 views
Proxy for Expected Economic Growth
Can anyone help me understand how expected economic growth is usually measured? I've read several papers that talk about using breakeven inflation as a proxy for expected inflation, and then the ...
7
votes
1answer
193 views
Forecasting using rugarch package
I want to do one step ahead in-sample forecasts. My data can be found here. This is just a data frame with the date as the rownames.
I specify my model and do the fit and show the plots with
...
6
votes
4answers
349 views
Best way to store hourly/daily options data for research purposes
There are quite a few discussions here about storage, but I can't find quite what I'm looking for.
I'm in need to design a database to store (mostly) option data (strikes, premiums bid / ask, etc.). ...
1
vote
0answers
121 views
How to normalize technical indicators for machine learning?
I'm using around 130 technical indicators for 100 different companies. Each company's stock price moves in a different range, see FTSE 100. In addition, each technical indicator moves in a different ...
3
votes
1answer
73 views
Risk-free rate for ex-post evaluation of investment strategy
When evaluating the strategy ex-post using e.g. Sharpe ratio, what should one use as the risk-free rate? Let's suppose I am using a 1Y sample of weekly returns, sampled between 2012-01-01 and ...
1
vote
2answers
86 views
Relationship between European, American options volatility
Suppose, if the price of a European option (say a put) can be shown to be monotone in volatility (say for any maturity), does it follow that American options has to be monotone in volatility?
...
4
votes
0answers
138 views
Rate Distortion Minimization in a Python Clustering Algorithm
I'm attempting to solve for $\hat{k}$ clusters, such that the rate distortion is minimized, as described here, however, the answers that I am getting from my algorithm are not following the "Jump" ...
