Reputation
6,305
Next tag badge:
50/100 score
7/20 answers
Badges
2 18 49
Impact
~237k people reached

20h
comment How to calculate yield spread?
Could you add the source of the question for reference's sake?
20h
comment Given cash flows, what is the interest rate of the following contract?
This question is too basic to be on-topic for this site dedicated to quant-finance professionals, so I have to close it. However, the answer provided is good and you should be careful the way you annualize your interest rate (use compounding).
1d
comment Why does changing the time step size in my Monte Carlo simulation change my result a lot?
I added the link to the book in question, but it would be good if you explained what you are trying to price (I guess a call option), using what model (I guess GBM). As the code is probably quite simple, you could have posted it as well in your question, which would have helped.
1d
comment Why does changing the time step size in my Monte Carlo simulation change my result a lot?
I'd go for 2), he's probably no scaling the volatility of the steps correctly, which makes the underlying asset is far too volatile and hence the price of the option (I guess?) becomes higher.
1d
comment Portfolio Strategies Project
If there are no free lunches, then calls are not cheaper than their theoretical price (that would be the free lunch).
2d
comment Why is the value of debt modeled as a short put option in Merton's model?
I missed this on as this is off-topic since this site is dedicated to quant-finance professionals who would know the intuition behind it. Since it has been answered, I'll not delete/close it.
2d
comment Why is the value of debt modeled as a short put option in Merton's model?
You should extract the answer from the paper and include it in the answer, otherwise this should be a comment. We're trying to have answers that contain as much information as possible in order not to depend on links as much as possible.
Jun
20
comment How to use calibrated Standard Stochastic Volatility?
Why don't you simulate the two assets between which you want to see the spread using their own model (could be the one described above) and then simply compute the spread as the difference between them?
Jun
19
comment How to use calibrated Standard Stochastic Volatility?
With this model, you have $p_t = p_{t-1} \exp(y_t)$, and this means that if $p_t$ is the price of the spread (as I think you do), then it will never change sign.
Jun
18
comment How to use calibrated Standard Stochastic Volatility?
Please make acronyms like PMCMC explicit or provide a link. Where did you get this volatility model from? Did you estimate an $x_0$ as well or do you assume $x_0 = 0$? You're assuming that the spread is always positive here, it this what you want?
Jun
18
comment Price of an American call option
"Analyze the price" is too vague to be answered properly here. What are you looking to express? Please rephrased you title as a question and make it specific in the description; we will then reopen the question.
Jun
16
comment How to tackle this exercise about Ito's formula?
You'll need to comment what you do at each step if you want to help him understand the solution.
Jun
16
comment How to tackle this exercise about Ito's formula?
@muffin1974 as he's stuck with the integral, I guess he doesn't know where to start so I can understand why he wrote the question this way. But providing the hint is really good.
Jun
16
comment Can Gaussianity of returns depend on the time frame?
@noob2 please be constructive in comments. Rhetorical questions are never as clear as a gentle explanation of your point, and they can be offensive. Thanks
Jun
16
comment Can Gaussianity of returns depend on the time frame?
Don't leptokurtic and fat-tailed mean the same thing? Usually, it's better to give paper names rather that advising to go on some search engine and search for a term (although here the term is useful and part of the answer). The second part of your answer would benefit from citations as these are quite important "assertions" (I'm not saying they're wrong).
May
22
comment How to effectively hedge a Fixed-Term deal in a foreign currency?
arf you're right, I was trying to simplify my problem too much. In my case the hedge is in USD, so it's not a perfect hedge. It makes things more complicated...
May
7
comment How to infer correlation?
I'm sorry Richard, I didn't get your last comment. Were you referring to method 1) by saying "by using MC"?
May
5
comment How to infer correlation?
Since I know nothing about the relation of $F$ and the other assets so how can I know the exact covariance?
May
5
comment How to infer correlation?
But is there any advantage compared to version 1)?
May
5
comment How to infer correlation?
If I assume $\epsilon$ is uncorrelated, then following your equation $ \rho_{F,i} = \frac{Cov(F,r_i)}{\sigma_F \sigma_i} = \beta \frac{ Cov(r_m,r_i)}{\sigma_F \sigma_i}$. Replacing $\beta = \rho_{F,m} \frac{\sigma_F}{\sigma_m}$, you get $ \rho_{F,i} = \rho_{F,m} \frac{ Cov(r_m,r_i)}{ \sigma_m \sigma_i} = \rho_{F,m} \rho_{i,m} $ right?