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Oct
21
comment how to use known premium of options to determine premium of options with another strike?
@barrycarter, could you please elaborate? It is either linear or exhibits different slopes on either side (in which case it is hardly linear). I would argue that the function of the smile highly depends on the exact type of underlying asset but rarely is it linear (except in special cases).
Oct
18
comment How do I calculate Sharpe ratio from P&L?
I agree with you that Sharpe is a poor metric, there are better ways to assess risk adjusted returns. But certainly it is not to model the probability of an operational blowup. Its like heavily overweighting the jump probabilities in a jump diffusion model as part of option pricing, for example. And of course does a lot of the intraday volatility (hopefully) vanish when the law of larger numbers kicks in, that is precisely the central reason for the existence of hft shops ;-)
Oct
18
comment How do I calculate Sharpe ratio from P&L?
@afekz, I disagree. Of course does anyone in this space primarily concern himself with trading risk not operational risk. You can't argue that just because every now and then an operational issue blows up everyone thinks all day long about how much it would cost if their servers or some tiny bit of code blew up. Yes maybe an operational manager. But firms like this are run and driven by those who generate revenues not those who keep costs down. Profit centers have always trumped cost centers.
Oct
15
comment How do exchanges make money?
Furthermore I think you may not fully appreciate why Reg NMS is in the spotlight. A financial market's most important property is the trust by investors and the knowledge that transactions are conducted in a fair, open, and orderly fashion. This can hardly be said of the current fragmented equity market in the US, or can it? I like how you extracted (yourself or from other source) how exchanges generate revenues, but your diversion into hft is misplaced and not entirely honest imho.
Oct
15
comment How do exchanges make money?
I find your line of reasoning re HFT quite flawed, at least as you presented it here. Some of the practices by some HFT players in equity space are not under scrutiny as a function of how exchanges generate revenues. The two are completely unrelated. And nobody denied HFT are middle men, well I would actually challenge that because a used car dealer is making markets in cars even during an economic crisis, hft firms are nowhere to be found during extreme market volatility, hence they hardly fulfill the classic definition of a financial market middle man.
Oct
14
comment Forex buying 2000+ pip difference
@rupweb, the scenario, outline by OP, clearly indicates were are talking about a retail broker and quite a shady one to say the least. If they already engage in keeping such pitfalls open for clients to fall into then chances are very high they are unregulated to start with which means they do not see a reason to let the client off the hook given such shady technique netted them money. An initial loss of 5k is way enough for most such brokers to justify ignoring the client's request. Just my 2 hunches but this question actually does not belong on this site.
Oct
14
comment Is there anyone still using Markowitz modern portfolio theory?
Of course do fund managers care about their performance. But it is shocking to see fund managers padding themselves on their shoulder just because they outperformed most of their peers by an average 2% while they may in absolute terms have lost 20% in a given year. Where did I hint at the possibility that fund managers might not care about their performance?
Oct
13
comment Forex buying 2000+ pip difference
I strongly disagree with your point. Many (if not most) currency retail brokers are unregulated and make no qualms about it. If someone funded accounts with them and got their .... ripped wide open then it is mostly the fault of the investor/"trader" because he/she signed contractual agreements. Even the most unethical brokers legally protect themselves by including contractual clauses that provide for the fact that investors agree with the price feeds and hence spreads they execute trades on. One can try to claw back money but the emphasis here is on hope rather than any certainty.
Oct
8
comment How to reduce fx currency pairs ? PCA or other tools?
What are you trying to achieve? You want to reduce to a basket of pairs that are uncorrelated to each other?
Oct
4
comment Looking for Research Paper on Creation of Currency Baskets
@PhilH, got it, thanks for pointing that out. Will keep that in mind for future searches. Thanks
Oct
3
comment Looking for Research Paper on Creation of Currency Baskets
@PhilH, sure when knowing the exact title. Apparently it was not that straightforward a find given I posted my question 2 months ago (and included the terms "principal components" and specifically mentioned I look for a paper that targets fx/currencies.) ;-)
Oct
2
comment Looking for Research Paper on Creation of Currency Baskets
Exactly what I was looking for, thanks a lot. I have no idea why it did not come up in any of my google searches.
Sep
29
comment Intraday Data - Stylized Facts?
Here is one: Currencies trade 24/5 and equities are traded from market open till market close. And not even that is a stylized fact, take a look at the Hong Kong equity market and you will encounter numerous unannounced (sometimes multi day/weeks) trading halts. Or consider the many locked markets or stocks in opening auctions that can last hours if not throughout the whole session (see Tokyo stock exchange for plenty examples). In summary nothing is stylized which is why risk taking approaches need to be dynamic and adaptive.
Sep
22
comment Why most of apple stock price since 10years have been gained overnight?
What is your question? The simple answer to the question in your header is that more price impacting news hits the wires after market close and before market open. Also, Apple derives most of its revenues and earnings from outside the U.S. Whats so surprising?
Sep
21
comment Why would there be a positive risk-free rate?
It would be nice the next time you almost entirely change your question to let a little bit of time pass before choosing an answer so everyone gets a chance to adjust their answers. What you ask now is very different from the question you initially asked.
Sep
19
comment Why should we expect geometric Brownian motion to model asset prices?
Sure it is, with weeks/months delays which I consider fast in terms of lost IP but long enough in terms of being able to capture some alpha before the rest of the street catches on.
Sep
19
comment Why would there be a positive risk-free rate?
Your point is another academic anecdote that unfortunately floats around way too often. a) Treasury bills are not risk-free. US Government debt is not even triple A rated anymore. b) I explained that depending on utility certain market participants are not content with generating 2% per annum, no matter the risk incurred. c) leveraging such "investment opportunity" is an urban myth: You assume the interest you pay on a loan to purchase risk-free assets is lower than the yield on such instruments -> certainly not true in most cases. Also, bidding such instruments pushes down yields even further
Sep
19
comment Why would there be a positive risk-free rate?
why models allow for it to be only positive?
Sep
15
comment For which instruments performs SABR/LMM better than LMM?
To my knowledge, most swaptions traders peruse the SABR or extended SABR model.
Sep
12
comment Hedging future USD cost using different IR and forwards
What is the exact question? I suppose it is how many euros you need to pay 6 months hence in order to receive USD 2500? That would be 1/1.30 EUR/USD * 2500 USD = EUR 1923.07. No need for anything else. You look to hedge spot fx risk. This provides the hedge. Keep in mind there does not exist one single hedge in the universe of finance that does not expose you to any risk. It all comes down to which risks you specifically do not want to be exposed to and which risks you can accept exposure to.