Hot answers tagged fx
11
There was a proxy called the ECU.
You should be able to use the weights on the Wikipedia page to get a time series back to 1979. Alternatively, the St. Louis FRED also provides this time series.
9
The main problem in your code is this line:
rowSums(coef(model) * frame[, -1])
I'm not sure exactly what is does, perhaps some matrix multiplication, but definitely not what you expect it to do. Try to replace it with manual multiplication
spread <- frame[,1] - (coef(model)[1]*frame[,2] + coef(model)[2]*frame[,3] + coef(model)[3]*frame[,4] + ...
8
Implied volatility is the volatility implied by some model. You will have a skew if your model is implying different volatilities for different strikes. However, the realized volatility of the underlying will be the same for all strikes. So, when you are dealing with realized vol, you can drop the "moneyness" axis.
Volatility cones can help you compare ...
8
The first column is just a unique id tagged by Gain; this allows you to separate multiple messages that come in with the same timestamp.
D means "dealable": this means that a trade could take place. According to this thread, Gain is known for not dealing around events like major news announcements.
[Note: In EBS data, which is much more reliable, "D" ...
5
Maybe not really an answer, but a justification of your approach. It's likely that your results can be expresses as
$$
\mathsf EX_1 = 1.2\text{ and }\mathsf EX_2 = 2
$$
where $X_i$ for $i=1,2$ is a random pf of a situation in a class $i$ (we denote it $S_i$). Your method solves the following problem: given a fixed number of trials we would like to ...
5
It depends on what aspect of ZAR you are trying to take a position on.
As A K pointed out, if your book is in USD and you want to take a position on the spot rate itself, then just have a USDZAR position. Yes, it is correlated with EURUSD because of both EUR-ZAR correlations and because of USD variations, but that's part of the USDZAR tradeoff.
If, ...
5
I am not sure why your question had so many upvotes because in currency markets anything else but triangular arbitrage does not exist. What is a quadrangular arb, I have never heard of it despite having traded fx among other asset classes for over ten years now.
Think about it: Lets say you observe the price of EUR/USD. You can build triangular arbs by ...
5
For starters, I am not even sure why you need to ask this question. There is literally years of free tick data available for FX, just check out quant.SE's data wiki.
Having said that, a Gaussian is a very poor fit to high-frequency data, particularly FX. Your strategy for simulating data depends on the idea behind the simulation. If you wish to actually ...
5
Looking at the original headers for some recent data we have something like this:
lTid cDealable CurrencyPair RateDateTime RateBid RateAsk
So D would seem to be "dealable", but to be honest I couldn't find an example of a non-D value in the files (I haven't looked thorougly though), so I don't really get it.
The cryptic ID, is a tick ...
5
Most common practise is to linearly interpolate. Log-linear would be wrong; forward points are commonly negative, and are merely a delta on the Spot. Closer would be log-linear on the outrights (Spot plus forward points), but even that is not worth bothering with.
If you have some idea of the shapes of the underlying yield curves, you can work out which are ...
5
You kind of answered the question yourself. Precisely because different market participants use different inputs to their pricing models, it is much easier to quote one single input (implied vols) than the output of 5 different inputs (BS option price). What is important is that you clearly differentiate between quoting and agreeing on the trade vs. the ...
5
The fx market, contrary to most other asset classes is an almost entirely fragmented over-the-counter market, aside the very small number of fx futures that are trading at dismal liquidity levels. Therefore, you will not encounter a single serious liquidity provider that will take a stab at estimating total traded volume in any of the currency pairs. Having ...
4
Fatih Yilmaz, formerly of Bank of America (currently BlueGold), has a piece called "Imaginal Spreads and Pairs Trading" on exactly this topic, if you can find it (I couldn't find a copy on the public internet), originally published April 17, 2009. He writes:
Academics and industry practitioners generally concentrate on time series aspects of currency ...
4
Liquidity
Since this is an asset class which is so tightly coupled with interest rates - it makes good products for clients inherently complex.
It also makes good sense to make wider markets for more exotic products than the plain vanilla ones - in which razor-thin spreads rule (and trading huge notionals is not everyone's cup of tea)
4
Overnight funding is made through an auction, a fixing as you name it and it is achieved successfully (usually, i.e. when Lehman Brothers doesn't go bankrupt) because of the huge amounts on BOTH sides of this auction (i.e. liquidity).
If you do an auction every minute, you will have more volatility as prices will potentially vary every minute and there will ...
4
While triangular arbitrages exists, they are a rare, short lived, and shallow. In several academic datasets they are very rarely seen, mainly for two reasons, market efficiency aside: (1) the time resolution of the data is not tick by tick but aggregated at some level (for example at 1 second intervals), (2) the dataset doesn't include all available quotes ...
3
The two are not equivalent, because of the cross-currency basis spread (CCBS), which became a risk factor in itself sice 2007, and does depend on term. This practically leeds to a difference in your constantly-assumed notionals (the notional is not constant anymore).
What it happens is that you assume having a constant notional cross-currency swap that ...
3
what you are trying to do is not recommended; especially in FX market.
here is why:
- The spread changes depending on time of day and trading venue.
- FX market is based on quotes. What you see is not what you get. This also depends on the broker you are using.
- FX market changes all the time; hence the spread today; may be different than same day last ...
3
I have a little more informations, so let me share it with you.
Even though I think that the frameworks I presented in my question are both corrects (i.e. aribtrage free), it happens to be the case that the market seems to have more "structure".
Here is a methodology that allows to retreive market quotes and which is the same as BBG (which is the best ...
3
@Sergey correctly identified the problem. The explanation is that coef(model) is a vector, frame is a data.frame, and element-by-element multiplication takes place in column-major order. The shorter vector (coef(model)) is recycled along the longer vector (each column in frame). For example:
frame <- data.frame(V1=1:5)
frame$V2 <- 2
frame$V3 <- ...
3
If you're looking for free data, I've heard this question many times asked to derivatives professors at the end of a lesson. They answered was most of the time to step by their offices so that they could give data they imported from the university data provider. So apparently, if even academy has to do it this way, I'd be surprised if you found.
This post ...
3
Disclaimer: I know nothing about FX trading, other than that I've heard something to the effect of "The first rule of FX trading is that you do not trade FX. The second rule..." you know how it goes.
I'm not into macroeconomics, but I get the impression that the benchmark for FX models is a random walk. That is to say that the fundamentals have nothing to ...
3
You can mitigate your fx exposure (hedge fx risk by engaging in an fixed/fixed fx swap. Let's setup an example:
You want to invest in two bonds, one EUR denominated and one USD denominated bond. Each bond pays semi-annual coupons (at the same dates for simplicity purposes) for the next two years. You are a US-based investor and thus want to earn returns on ...
3
If you're asking what the FX Outright for 1M EUR/PLN is, given that table, then yes the answer is just outright = spot + fwd points, which is 3.4550 + 0.0079 = 3.4629 (you had the wrong column for your 1M value).
Usually fwd points are quoted directly (i.e. not as an outright), using a divisor set by market convention. I expect EUR/PLN divisor to be 10,000, ...
2
Short answer - Use the betas from a multiple regression to create a hedged portfolio.
In a single factor model (i.e. hedging with only one other currency), you can interpret the Beta as the proportion of the factor that you would need to short. So if Beta = .5 then for every 1MM you are long, you would go short $500K on your currency pair hedge. The same ...
2
Binary options can be replicated (in theory) by trading long and short call options with very close strikes. Take the Black-Scholes formula and differentiate it over the strike. You will need to know the slope of the implied volatility skew around the strike of the binary option. This you can do by fitting a parametric formula (I don't know exactly what is ...
2
Unless explicitly mentioned, iShares ETFs do not apply any currency hedging directly. (See the factsheet for the case of IJPN. The base currency is USD merely because it is the common currency for a set of identical funds offered in many different versions around the world. At the end of each day they mark their books in USD, converting their ...
2
As I understand it, the currency derivatives are meant for customers to hedge actual exposure. A foreign distributor obviously has exchange-rate risk, but it's hard to say who actually has risk exposure to the S&P 500. (There's the effect of beta, of course, but it's pretty rare for someone to have tangible---not just CAPM---exposure to the S&P. ...
2
I don't believe there are any models because it would be fruitless to develop one. Whenever central bank intervention looms large in currency markets, all the traditional models become much less relevant than trying to predict how the central bank will react to various scenarios. In this case, foreseeing the SNB's move to sell a significant quantity of ...
2
Assume you have an USD-EUR Cross Currency Swap (3M-FloatUSD+SpreadUSD vs 3M-FloatEUR+SpreadEUR) (spread on USD side is usually zero), collateralized by USD-OIS (Fed Fund)
I assume you know the USD-OIS discount curve, then you know the discount curve for USD cash flows.
I further assume that you know the USD-3M forwards collateralized w.r.t. USD-OIS (from ...
Only top voted, non community-wiki answers of a minimum length are eligible
