548 reputation
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bio website twitter.com/experquisite
location Vancouver, Canada
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visits member for 1 year, 11 months
seen 17 hours ago

Derivatives pricing in C++, automated trading in Scala.


Dec
8
comment Combine together different strategies in one portfolio
I guess it depends how sophisticated you want to get. Equal weight is or equal risk is pretty simple. Optimizing multivariate empirical distributions is harder. Meucci's book might have something to say on this, though I admit I haven't gotten around to reading it yet.
Dec
3
answered PEGY Ratio: Does it make sense?
Dec
3
comment PEGY Ratio: Does it make sense?
That said, we are adding unlike terms, so it doesn't make much sense.
Dec
3
comment PEGY Ratio: Does it make sense?
Cash paid as dividends will not be used to finance internal reinvestment, which drives earnings growth. Arguably G+Y represents the internal + external compounding of returns on equity.
Dec
2
comment How do I artificially generate intraday ticks data from a given input (Open,High,Low,Close,Volume) using Brownian Bridge method?
Why don't you do some analysis of high and low times from actual tick data to calibrate your model?
Nov
19
comment Why IV shares an inverse relationship with underlying
I would just add that this is often due to increased correlations during declines, perhaps due to forced sales due to margin calls and other contagion. Also worth pointing out that this is a very equity-centric point of view. In FX, very often, there's a smile but no skew.
Nov
16
comment Price 3m libor autocap with LMM calibrated on 1y swaption data
You can get much more breadth of swapping got data than that. And to calibrate correlation, you probably want some CMS spread options quotes too, though those are harder to find.
Nov
12
comment Key Rate Duration for MBSs greater than Key Rate Tenor
Well, first of all, the "duration" in a "key rate duration" is really just the sensitivity of the instrument to changes in that particular rate. The sum of them should roughly add up to the duration of the instrument to a parallel shift. KRDs can get muddied if the curve is using a global interpolation, and in exotics and MBS, it all depends a lot on the pricing model, for instance, how prepayments are correlated with particular rate shifts. That said, I'm not an MBS expert. Definitely don't think of "duration" as any sort of time, it's just a delta.
Nov
12
comment Logging FIX Messages
You should also look into Chronicle, or perhaps the newly-released Aeron by Martin Thompson
Nov
10
comment Implied volatility and pricing of vanilla options
A large contingent will view the question as meaningless, since vanilla option prices are quoted, hence don't need to be priced. The model clearly is not correct, since there exist volatility smiles. It is arguably useful to price those vanilla options which are not exactly quoted, by interpolating the implied volatility. I suppose it depends if you are trying to price vanillas better than the market, or more interested in pricing non-vanillas which you can hedge with vanillas, as others have pointed out.
Nov
9
comment Is there a better way to price options than with historical volatility?
I quite like the Yang-Zhang volatility estimator, which uses the daily OHLC data: atmif.com/papers/range.pdf
Nov
9
comment Implied volatility and pricing of vanilla options
You can parameterize option prices using whatever model you like, V/42 for instance. That model is unlikely to be as illuminating as Black-Scholes though.
Nov
7
comment Why is the rate of change of a stock price proportional to the stock price?
Well there are lots of reasons, but no true reason other than that is what the model is. It's a limited liability corporation with a specific equity value and an arbitrary share count. Arguably the purpose of a corporation is to produce some return-on-equity through internal reinvestment, and that reinvestment implies compounding and exponential dynamics.
Nov
5
comment Why is the rate of change of a stock price proportional to the stock price?
Here's a simple reason: stocks can be split, arbitrarily, so if drift wasn't relative to stock price, there would be arbitrage in stock splits.
Oct
30
comment Is it important to equalize the minimum price fluctuation in pairs trading?
If your basket only has two contracts, then a linear regression on prices is fine. Some people attempt to trade the "ratio" of two prices, though, or trade flat 1:1 contracts, which is usually a mistake. There is always some debate whether one should be regressing prices or log-prices.
Oct
29
comment Is it important to equalize the minimum price fluctuation in pairs trading?
I am not sure you need to account for the contract tick size, but you definitely need to account for differing variance or 'beta' of the two contracts.
Oct
27
comment How is stock data objectively different to this random walk?
Is your question "how are these plots objectively different [by eyeballing]?", or "is quantitative trading futile?" Stock market return distributions are very different from your generator, but that probably won't help you trying to trade them.
Oct
16
comment Importance sampling for barrier option like pricing by Monte carlo
You mean like references to importance sampling, control variates etc? I believe these topics were covered in Jackel's book amazon.com/Monte-Carlo-Methods-Finance-Jaeckel/dp/047149741X
Oct
1
comment Is it fair to assume $(ud=1)$ in the binomial tree option pricing model?
Right, my point is that there exist binomial models for non-recombining trees where your $ud=1$ condition doesn't hold, which still converge to a price as $\Delta t \rightarrow 0$.
Oct
1
comment Is it fair to assume $(ud=1)$ in the binomial tree option pricing model?
researchgate.net/publication/… seems to be regarding non-recombining binomial trees for options pricing, but I haven't read the paper.