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12

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 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" ...


9

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 ...


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] + ...


9

The majority of the movement in currencies is in the spot rates, rather than in the term structure. A 3-month rolling hedge would always be protecting against movements in the spot rates, no matter when they happen. Using your example, if the current EUR/USD rate is 1.3333, you might be able to get a 3-month forward at 1.3339. (Forgive me if I have the ...


8

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 ...


7

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 ...


6

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 ...


6

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 ...


6

I work extensively with currency models and have to admit there is not much in the public domain regarding recent published research that may satisfy your needs. Some of the below mentioned models incorporate stochastic components but please keep in mind that most research on currencies focuses on fundamentals (such as balance of payments) and depending on ...


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

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

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've got your calculation of the spread wrong, for what you're trying to do. Looking at the spot prices: SGD = USD 0.8, MXN = USD 0.077, NOK = USD 0.16. So in descending order they are SGD, NOK, MXN. The order of levels on your chart is SGD, NOK, MXN. INR vs CHF is the same: CHF = USD 1.1, INR = USD 0.017, so you get a larger spread for CHF in dollar ...


5

Today (1 day after the fact) the following headline appeared in the Financial Times: "September Fed rate lift-off put in doubt, Fallout from China’s currency move turns market mood". If true, this would certainly explain why the USD declined (i.e. the interest rate rise that everyone expected has been postponed). However, in my experience it is very hard to ...


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

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 ...


4

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 ...


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 ...


4

Trading through an ECN is a good idea, FXALL is probably a bad choice since they have such a small market share. Currenex and Hotspot are both better. EBS (in EUR, JPY, and CHF) and Reuters (in GBP, AUD, CAD) have the largest market shares, but they both are expensive to set up and require monthly fees regardless of how much you trade, their liquidity in ...


4

Correct explanation by Freddy. Retail investors and even most institutional investors don't have access to trading, bid, or ask volumes. The reason is that there is no centralized body who would aggregate data. Would it be possible to put it in place? Certainly, but the big fx players (handful of the really big banks) would suffer. Although not even the ...


4

Look for the Overnight LIBOR or OIS rates for each currency. It's easier to find LIBOR rates by the way, but OIS are closer to being risk-free. In a nutshell, LIBOR rates contain bank related credit risk which may induce bias your analysis. Also available for the USD is the fed funds rate and the ECB refinancing rate for the EUR.


4

Most of the time, when you have a simple SDE without a drift, it's a martingale because the Wiener process itself is a martingale. In your example, you have a constant with the Wiener process, therefore the whole process must also be a martingale because the expectation is clearly X(t). However, we can't conclude a driftless SDE is always a martingale. ...


4

To answer this question, lets dive into some of the factors that generally determine foreign exchange rates. I've outlined the two of the most widely discussed factors below. Current account balance An economy's current account is a component of an economy's balance of payments and is a measure of the economy's financial transactions with the rest of the ...


4

The CME' Fed Fund Futures are what you are looking for. http://www.cmegroup.com/trading/interest-rates/stir/30-day-federal-fund.html On settlement day they settle at the average overnight rate set by the Fed during the contract month.


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 ...



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