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  • 0 posts edited
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  • 255 votes cast
Nov
5
comment Why does graphic of log first difference of renminbi look similar to hkd?
Most likely it is related to low dollar volatility during that time period which impacted both USDCNY and USDHKD rates.
Nov
5
comment Trouble arriving at Black-Scholes Formula
Bob, thanks for the LaTex edit
Nov
5
comment Why does graphic of log first difference of renminbi look similar to hkd?
Incorrect, a) returns in USDCNY are on average much more volatile than returns in USDHKD as you can see from your own charts, b) you can also see that USDCNY reflects more negative than positive returns while that is not the case for USDHKD.
Nov
5
comment Black-Scholes: Why the focus on volatility?
Andrew Dabrowski, please take a look at this question, (so far) you are incorrect in most of your claims regarding the subject matter of option pricing: quant.stackexchange.com/questions/8247/…
Nov
5
comment Black-Scholes: Why the focus on volatility?
But just to make sure, this was not the center of my answer, my answer attempts to make the point that implied volatility is the corner stone of option pricing. In fact, I claim that different implied vol levels cause more variation and potential error in pricing an option than the choice of pricing model (I cannot prove that but its a conclusion drawn from many years in the "war zone"). The choice of model in fact makes zero difference when dealing options as long as both counterparties agree on the same model at the time they translate IV-> Invoice Price. What they trade is IV, nothing else.
Nov
5
comment Black-Scholes: Why the focus on volatility?
IV = implied volatility and no, it is not an output but an input. Any reputable option dealer/trader/sales person should have a keen understanding at exactly which implied vol levels their products trade whereas hardly anyone knows the quoted prices. It is a huge misperception even within the quant community to believe that option prices are plugged in and what comes out is an implied vol level. A good comparison are bond price vs yields on the fixed income side: Hardly anyone quotes bond prices but everyone has a keen understanding (so I hope) of yields.
Nov
4
comment Semi-strong efficiency and HFT
@BobJansen, absolutely, that is exactly what I am saying. If markets were even semi-strong form efficient hedge funds, sell-side firms, and buy-side firms would not exist. We would all just invest in broad market indexes. Any different view on this topic?
Nov
1
comment Relationship in Order Book between S&P500 and S&P500 Futures Contracts
Regarding your question, try to look at the big picture. In financial trading it all comes down to the transfer of risk. If new risk is initiated then that "trickles down the system". Someone going long large amounts of S&P futures may transfer risk but the counter parties in the market, such as market makers or sell-side firms may hedge such risk in the index or futures which counters the long initiation. Look at large option trades and google "pin risk" and you see that prices are more often than not trading around large strikes especially in large fx options close to expiry.
Nov
1
comment Relationship in Order Book between S&P500 and S&P500 Futures Contracts
PLEASE, can you mark more of the answers given to your questions as complete or comment on why the answer(s) is/are not sufficient? I know I repeat myself but you keep on asking questions but hardly provide any feedback or mark answers as being sufficient. I find it disrespectful to keep on asking heaps of new questions without commenting a thing on the help others provided.
Oct
31
comment Machine Learning vs Regression and/or Why still use the latter?
Would upvote multiple times if I could. Though, I slightly disagree with your hft claims. I would categorize the "quant IQ" requirements to implement hft algorithms as being very low, on the other hand be a top notch programmer and you most likely make more than any of the quants at a meritocratic hft house.
Oct
31
comment compute sharpe ratio for options?
Your edit makes your question even more confusing: 100 call options (each contract representing 10 shares) and a strike price of 25 pounds makes that a cost of 25k pounds not 250k. Same with the proceeds you receive upon selling the delivered shares at market price. Also, you should read up on the basics of risk adjusted return measures. You need to generate a string of returns before you can calculate the variation of such returns. So, I still do not understand what you try to achieve here???
Oct
31
comment Machine Learning vs Regression and/or Why still use the latter?
I interned at a buy side firm at the start of my career and passed up an offer to join because I felt their effort to rotate company fundamentals millions of times in the hope to discover a predictive multi factor model was fruitless and ridiculous. That was a fund managing close to 100B and everyone went home happy each day knowing they had their guaranteed base and bonuses pocketed and neglecting the fact that they generated returns very similar to their benchmarks. I simply ask why you think metrics that are already priced into assets should have predictive power...
Oct
31
comment Machine Learning vs Regression and/or Why still use the latter?
with all due respect, but why would you believe from the start that you have any information or data points at hand that would assist you in predicting which sectors outperform the broad market in 6 months? If I have to summarize my take on financial markets then I would say success has everything to do with managing risk in smart ways as well as seizing opportunities in times of market inefficiencies and it has very little to nothing to do with forecasting the future.
Oct
31
comment compute sharpe ratio for options?
There is no difference whatsoever. As long as you realize returns on any asset then you can calculate a risk adjusted measure of return, in your case Sharpe Ratio.
Oct
30
comment How to compare volatility models?
I read the question as a request to compare the accuracy/predictive power of each of the volatility models not with each other but with the actual realized volatility. In that I agree with Shane in case I understood what we tried to say and hence my rather cynical first comment (because I resort a goodness-of fit test, regression result reading to being an elementary part of each quants' arsenal of analysis tools that I did not believe it warrants explaining).
Oct
29
comment How to compare volatility models?
Compare future forecast volatility with future realized volatility...done....
Oct
29
comment How to think about dollar volume in Eurodollar futures?
thats basically the value of 100 basis points. (1 basis point value: $1,000,000 * 90/360 * 0.01% = $25). Thats basically saying that if the quoted price of the Eurodollar future is 100 with a multiplier of 2500 then the dollar value of 1 contract is $1,000,000 (you need to reflect the 90-day contract specification and hence multiply by 4).
Oct
29
comment Calculating Greeks in Covered Calls?
Just my 2 cents, should my hunch be right that you are a developer haunted with the daunting task to implement financial options concepts without a clear road map then I highly recommend you to go back to your project manager or trading desk head and ask them to walk you though all the concepts themselves. That is not your job and you should not have to bother with that. Its as if a trader is asked to program an FPGA board. Ask them to give the formulae and functions to you and be available to answer any finance theory related questions...
Oct
28
comment How to think about dollar volume in Eurodollar futures?
What is your question? You just walked through the (correct) calculation of notional value yourself. In the specific case of eurdollar futures your contract multiplier is $2500 (CME) and the number contracts traded 73k. You should consider the dollar value that is settled and ED is cash settled. So, it depends on whether you are interested in notional, defined in the same way as notional when the contracts are settled or whether you are interested in notional of the underlying interest contracts. The choice is yours. I would go with the former.
Oct
27
comment C# Broker API for FX Trading
Most brokers you mentioned are exclusively targeting the retail crowd with wide spreads, low liquidity, last look, delayed fills and a host of other shennenigans. But I am glad you found the answer to your question yourself