# Quantitative Finance Stack Exchange Community Digest

## Top new questions this week:

### ETF Market Making - Locking profits via hedging

I am interested in deeply understanding the way ETF market makers operate to profit. I already know that market makers profit from buying at the bid price and selling at the ask price, and I am also ...

hedging arbitrage market-microstructure market-making etf

### FX Option Price Quotation

I'm trying to replicate the following FX vanilla option pricing exercise (and the conversion between the quote types), taken from Wystup (2006). A call's value today is well-known given by BS / ...

option-pricing black-scholes fx excel

### Are there any standards for the precision of stocks prices, amount of stocks etc.?

I am currently developing a software that needs to store stock prices and the amount of stocks (sold/purchased) of a given company. Now I am wondering which data types I need to use to store this data....

equities programming price

### What makes modeling interest rate derivatives very difficult compared to equity derivatives?

I understand while equity derivatives require the modelling of stock price at expiry, interest rate derivatives typically require modeling both the expiry and tenor, thus increasing the dimensionality ...

interest-rates derivatives

### Confusion about terminology : Finite difference for option pricing

Consider the following initial-boundary value problem for $u = u(x,t),$ $$u_t - a u _{xx} = f(x,t) \text { for } 0 < x < L \text { and } 0 < t< T$$ along with bunch of initial and boundary ...

option-pricing black-scholes finite-difference

### Valuing Bonds With Continuous Coupon Yields

How do I find the value of bonds with continuous coupon yields and interest rates that are both a function of time? The bond has a redemption of 2000 at time $t=2$ and pays continuous coupon payments ...

bond

### Recreating Bid-Ask from Transactions data

A database only has transactions/trades for a given instrument. In order to recreate bid-ask of the instrument to estimate the average bid-ask spread, what process does one need to follow? what are ...

market-data historical-data limit-order-book high-frequency-estimators

## Greatest hits from previous weeks:

### 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

### Implied interest rate from FX swap

This is not homework. I am trying to calculate the implied interest rate of one currency (C2) using an FX swap and the interest rate of another currency (C1 - base). I have the following: Spot: 7....

interest-rates fx forward

### How to check if a timeseries is stationary?

I'm using KPSS Method to check if the series is stationary, but I would also like to use another test to confirm if the series is stationary or not, what method coudl I use?

time-series stationarity

### Why non-stationary data cannot be analyzed?

Searching online, i found out that non-stationary cannot be analyzed with traditional econometric techniques as in case of non-stationarity some basic model assupmtions are not met and correct ...

time-series stochastic-processes econometrics stationarity financial-engineering

### Is R being replaced by Python at quant desks?

I know the title sounds a little extreme but I wonder whether R is phased out by a lot of quant desks at sell side banks as well as hedge funds in favor of Python. I get the impression that with ...

time-series statistics r python quants

### Why subtract increase in net working capital to get Free Cash Flows?

Here's the formula for free cash flows I'll be referring to: FCF = EBIT*(1-Tax Rate) + Depreciation and Amortization – Capital Expenditures – Increases in Net Working Capital (NWC) If you have an ...

accounting

### What is the difference between convertible bond and bond with warrant?

One site suggested the difference is that the warrant in the bond with warrant is a fixed price on company stock. E.g. for a \$1000 bond, you can buy 500 shares at \$2 each. And that convertible bonds ...

convertible-bond

## Can you answer these questions?

### How to find the equilibrium price in a CDA with limit orders?

I'm trying to understand how a continuous double auction works, by working through the below setup: I'm trying to figure out what the final results would look like how to determine the equilibrium ...

limit-order-book

### Brinson attribution for arbitrary set of style factors (size, momentum, vol, etc)

I'm looking to do a Brinson performance attribution on a portfolio of stocks where instead of decomposing the returns in terms of sectors we use factors instead. Basically, I want to do what Style ...

portfolio-management factor-models performance