# All Questions

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### What math concepts are used in designing volatility models

What topics in statistics and mathematics do I need to understand thoroughly before I can start to dabble with stochastic volatility models and volatility arbitrage?
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### Is it possible for two securities to have the same first 8 characters of a cusip, but differ in the check sum?

CUSIP is a 9 character long identifier. The last digit is a check sum checking the first 8 previous characters. This seems to me that it is not possible for two securities to have the same 8 ...
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### Why gamma for ATM option decreases as volatility increases

Why is the gamma for an at the money option less when volatility increases. Intuitively ,I thought that increasing volatility means more uncertainty,hence the option price will be more sensitive to ...
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### What are the dynamics of the reverse of this FX process?

Assuming the dynamics of the exchange rate between two currencies at time $t$ is given by: $$dX_t=\Delta r X_t dt+ σ X_t dW_t$$ Is the FX Reverse process $\frac{1}{X_t}$ a brownian motion? How can ...
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### Wholesale credit risk management

Trying to read up on "Wholesale credit risk ", can't find any useful references, why the emphasis on wholesale? - Any help greatly appreciated.
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### Libor Market Model: numeraire change

I am currently studying the Libor forward market model, and although I get the mechanics behind the main arguments, I still do not have an intuitive idea of what's exactly the objective behind ...
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### Overlapping Value-at-Risk Backtest Data an Issue?

My understanding of VaR model back testing is thus: ~~ t: Calculate daily VaR using look back data over n past days t+1: Compare daily return against VaR, record breach if one occurred, repeat ...
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### Hedging bond with CDS of different maturity

Say I buy a 10-year bond with a notional of 100k. To hedge my credit risk entirely I could buy a 10-year CDS, also on a notional of 100k. Now, if there are only 5-year CDS trading and no 10-year CDS, ...
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### 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 ...
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### Eurdollar Futures

Trying to understand the Eurdollar market a little better. I understand it's the market for dollar denominated deposits outside the US (not just in Europe). They are unregulated and not subject to ...
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### 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 ...
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### Do binary options make any sense?

Reading from "www.nadex.com" - the copy reads "Binaries are similar to traditional options but with one key difference: their final settlement value will be 0 or 100. This means your maximum risk and ...
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### How to price an European call on zero-coupon from the yield curve?

It is known that the price of an European call of maturity $T^*$ on zero-coupon of maturity $T$ is given by $$p(0,T)= B(0,T^*)\mathbb E ^{\mathbb Q_{T^*}}\left[ (B(T^*,T)-K)^+\right]$$ where ...
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### Modified or Macauley Duration in python

are there any existing python modules that can calculate Modified and/or Macauley Duration of a bond.
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### Total return index for interest rates (EURIBOR 3M)

I would like to calculate a daily total return index for the EURIBOR 3M. • Should I freeze at the beginning of each qurter die rate? (With this methology the developing of the index depends on the ...
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### PCA on term structure of interest rates

Interest rate time series seems to be non-stationary whenever test is performed But covariance or correlation matrix is derived from term structure time series which are non stationary and later PCA ...
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### When $C(K_2) = C(K_1)$ for call options with the same expiration date

The exercise is to show $C(K_1) \geq C(K_2)$ where C(K) denotes the value of a call option on a stock price S with strike price K. We assume the expiry is the same for both. I have proved this by ...
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### Where to get master list of mutual funds?

I cant seem to find a straight answer anywhere on Google for this. I would like to create a master list of all known mutual funds and their ticker symbol. Is it possible to get this data from ...
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### Need guidence on quant trading [on hold]

I am just learning quant trading and i want to trade based around probabilities. What do i need to learn to achieve this goal? Do I need to learn C, SAS, Excel? Also what is the best data feed to ...
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### ZSpread in multiple curve framework

how do I calculate ZSpread for a govt. bond in a multiple curve framework? I have not come across the exact details anywhere so I want to verify if I'm right. Below is my understanding, please correct ...
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### Impact of Greeks on PnL for FX Option [on hold]

How to calculate Delta PnL, Gamma PnL, Vega PnL for an FX option?
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### What are the main flaws behind Ross Recovery Theorem?

Stephen Ross’ new paper claims that it is possible to separate risk aversions and historical probabilities if the Stochastic Discount Factor is transition independent using Perron-Frobenius Theorem. ...
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We have $U_1 ,U_2 \dots$ independent and identically distributed random variables on a probability space, with $P(U_1=2,55\%)=1/2=P(U_2=-2,5\%)$ We have the the stochastic process $X=(X0, X1, ... 3answers 102 views ### (Beginer on bond market) References on callable bond's pricing I am searching for references on pricing callable bonds. I've not find any rigorous mathematical approach on the web. All I found was some soft approaches in a discrete framework. Edit: First of ... 0answers 17 views ### Calculation of Returns and Risk Metrics for L/S Portfolio I am trying to build a test for a long/short portfolio. I am aiming for market neutral and have put together a long portfolio as well as a short portfolio (see below). However, I am not sure if I am ... 2answers 48 views ### Curve Euribor - Euribor 3M I'm setting up some Euribor 6M and Euribor 3M curves. So far i have all the data and quotes i need, but i'm having trouble defining the firsts points of the curve. I'm currently using 6M Euribor and ... 2answers 41 views ### Why IV shares an inverse relationship with underlying Why does implied volatility usually fall when underlying rises and rises when underlying falls? Implied volatility is a length of one standard deviation. From this definition, is it possible without ... 4answers 761 views ### Software for decomposing structured products into plain vanilla products Nowadays structured products (or packages) with complex payoff diagrams are omnipresent. Do you know of any software, add-ons, apps, code whatever, that enables you to enter a payoff diagram or a ... 3answers 117 views ### Greeks of self-financing portfolio I would like to learn more about the Greeks of portfolios of options: In textbooks and websites, I commonly encounter the unqualified claim that "The Greek measure of a portfolio is the sum of the ... 1answer 40 views ### Pricing rule shall be a martingale measure In the book "Financial Modelling with jump processes" by Cont and Tankov there is a chapter that explains martingale pricing principles. It is not extremely formal, but gives the idea underlying the ... 1answer 25 views ### hull white model calibration using cap prices hi i'm given cap prices and swap rates and i'm trying to calibrate the hull white to them that i will then use to price a swaption. I know that from implied volatilities you can calibrate your model ... 9answers 3k views ### How good is managed code for algo trading? I am currently working in a firm that does algo trading. We do all of our stuff in Java. And we do make money out of it. We have debates all the time whether we would have made more money with native ... 1answer 44 views ### Various ways to choose bonds for a butterfly strategy? What are the various ways to choose bonds for a butterfly strategy? For eg., I already know the most common one i.e., choosing short and long term for the wings (barbell) and the medium term for the ... 1answer 44 views ### What is delta neutral Does delta neutral portfolio mean you add up deltas of all positions and the sum should be zero? Is this true? Also, in a FX portfolio consisting of FX calls puts and Fwds, if FWD delta is given for ... 2answers 84 views ### Relation between IV and SD In option pricing, volatility naturally appeared through the Black-Scholes (BS) model where it was a coefficient for the linear diffusion term$\sigma S\,\mathrm dW_t$, and as such represented the ... 4answers 49 views ### Find the order selection in ARMA model (q & p ) I write a ARMA model in Matlab and before i calculate the predict value with the error i set the order selection (p,q) to some random value but how To determine the number of AR and MA lags 2answers 70 views ### Does the correlation of matrices have 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 24 views ### finance - using CAPM [on hold] The risk-free rate is 4%, and the expected return on the market portfolio is 12%. Using the Capital Asset Pricing Model: a. What is the risk premium on the market? b. what is the required return on ... 2answers 104 views ### Optimal Portfolios In modern portfolio theory, one famous problem is the Markowitz mean variance optimal portfolio, defined by solving ... 0answers 9 views ### finance using beta and std [on hold] LGM Company has a standard deviation of 42% per year and a beta of 0.10. ACO Company has astandard deviation of 31% a year and a beta of 0.66. Which investment (ACO or LGM) would be safer for a ... 1answer 201 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 130 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 ... 0answers 90 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$and recovery function ... 1answer 39 views ### is Sum of P&L equal to portfolio value For a portfolio containing FX options, would the sum of P&L for each option be the portfolio value? 1answer 52 views ### Historical Data on$/yen forward exchange rates

Would anyone happen to know where I can find historical forward exchange rate data between the yen and dollar?
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### float64 to store price data: is precision sufficient?

I am looking to store equity price data in a hdf5 table. The use will be purely as a historical archive, not as day-to-day data source. Options One option would be to store base10 significand and ...
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### Web Based Market Profile Code

I am looking for someone who knows of or has access to web based charting code using Market Profile. Does this exist out there? I would prefer the source code so I can make changes to it. Any ...

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