Community Digest

Top new questions this week:

Fama-French factor model: why mimicking portfolios?

I am trying to understand the Fama-French factor model, or any kind of CAPM extensions really. What is really puzzling me is the use of mimicking portfolios. Fama and French create mimicking ...

modern-portfolio-theory factor-models capm fama-french  
user avatar asked by deblue Score of 5
user avatar answered by Matthew Gunn Score of 7

Comparison of the American and European call deltas

Suppose the interest rate is zero. A stock with price $S(t)$ at time $t$ pays only one dividend at time $s$ such that $S(s_+)=S(s_-)q$ where $q\in[0,1]$ is a constant. Consider a European call and an ...

options american-options delta  
user avatar asked by Hans Score of 3

Gamma for a basket option in Python - Finite Differences does not agree with AAD Autograd library using Heaviside Approximation

I have been trying to use the Heaviside Approximation for a simple basket option so that I can solve for Gammas with AAD (Adjoint Automatic Differentiation). This routine smooths the payoff function ...

option-pricing programming greeks finite-difference  
user avatar asked by Matt Score of 2

Trade price and settlement price

I recently came to know about TAS: Trade at Settlement. In that context, as a layman, I'm tyring to make sense of why the settlement price matters in a trade. Perhaps these betray my ignorance: What'...

futures  
user avatar asked by Jeenu Score of 2
user avatar answered by Hans-Peter Schrei Score of 4

Binomial tree convergence tree towards BS equation - Struggle with a limit

I am trying to prove that the Binomial tree pricing method converges towards the Black and Scholes model, but I am struggling on a specific step. I don't understand how the limit of p*(1-p) is ...

black-scholes binomial-tree  
user avatar asked by cp123456 Score of 2
user avatar answered by LvM_ Score of 0

Naive Diversification under mean variance

I'm looking for a way to introduce naive diversification bias in a mean variance framework and had the idea to model it as some sort of "aversion to extreme portfolio weights" of the ...

mean-variance diversification minimum-variance  
user avatar asked by T123 Score of 1

How do banks and dealers effectively hedge a variance swap?

It is known that a variance swap can be replicated by a strip of options. However, it is costly to trade that many OTM options and there is not enough liquidity to trade the wings in the quantity that ...

hedging delta-hedging variance-swap  
user avatar asked by Rodrigo Score of 1

Greatest hits from previous weeks:

Why do some people claim the delta of an ATM call option is 0.5?

I am looking for a mathematical proof in terms of differentiating the BS equation to calculate Delta and then prove it that ATM delta is equal to 0.5. I have seen many books quoting delta of ATM call ...

options black-scholes  
user avatar asked by ladz Score of 14
user avatar answered by DoubleTrouble Score of 13

How are correlation and cointegration related?

In what ways (and under what circumstances) are correlation and cointegration related, if at all? One difference is that one usually thinks of correlation in terms of returns and cointegration in ...

time-series statistics correlation cointegration  
user avatar asked by Joshua Ulrich Score of 61
user avatar answered by bill_080 Score of 45

Most complete list of investment mistakes in stock markets

I'm looking for a (hopefully exhaustive or at least extensive) list of behavioral biases that are currently observable in the stock market. I'm well aware and replicated some of the evergreens such as ...

equities asset-pricing behavioral-finance  
user avatar asked by T123 Score of 18
user avatar answered by Kevin Score of 16

Fama-Macbeth second step confusion

I am confused on how to run the second step of the Fama Macbeth (1973) two step procedure. I have monthly stock returns and monthly Fama-French factors, for around 10,000 stocks. This creates an ...

regression asset-pricing fama-french  
user avatar asked by Konstantinos Score of 18
user avatar answered by phdstudent Score of 20

What is the intuition behind cointegration?

What is the intuition behind cointegration? What does the Dickey-Fuller test do to test for it? Ideally, a non-technical explanation would be appreciated. Say you need to explain it to an investor ...

time-series statistics cointegration intuition  
user avatar asked by user40 Score of 32
user avatar answered by Shane Score of 35

Difference between Risk Transfer and Risk Sharing

There seems to be a thin line between risk transfer and risk sharing. Can someone explain with example how can this be differentiated?

risk risk-management  
user avatar asked by Shivendra Score of 2
user avatar answered by Neeraj Score of 3

Central Index Key (CIK) of all traded stocks

Is there a way by which I can get a list of CIK of all registered stocks at the SEC?

sec  
user avatar asked by Jean Score of 43
user avatar answered by jeff m Score of 33

Can you answer these questions?

Saddlepoint approximation when CGF is approximated

According to the saddlepoint approximation, if the cumulant generating function $K(t) = \log E[e^{tX}]$ of the distribution of the random variable $X$ exists and is known, then the density $f(x)$ of $...

options moments saddlepoint-approximation  
user avatar asked by Frido Score of 1

Fitting k from Avellaneda but the curve is not exponential

I am trying to fit kappa for a ticker. I am using 5 days of data to illustrate how this can be done, which isn't that much data but I think is sufficient to show my problem. This data however appears ...

market-making  
user avatar asked by Oliver Xu Score of 1

Can volatility assume negative values under multi-factor HJM framework?

I could find any reference restricting the sign of the volatilities in the multi-factor HJM framework. Can someone please confirm if $\sigma_i(t,T)$ can assume negative values for some $i,t$ and $T$? $...

interest-rates calibration heath-jarrow-morton  
user avatar asked by Joe Score of 1
user avatar answered by Hans-Peter Schrei Score of 0
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