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  
asked by Jose Maria Gutierrez 8 votes
answered by JoshK 2 votes

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  
asked by KevinT 3 votes

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  
asked by stefan.at.wpf 2 votes
answered by Pleb 3 votes

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  
asked by Hari 2 votes

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  
asked by Rhombus 2 votes
answered by Quantuple 4 votes

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  
asked by Podski 1 vote
answered by Kermittfrog 1 vote

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  
asked by shoonya 1 vote
answered by Norgate Data 2 votes

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  
asked by Shivendra 2 votes
answered by Neeraj 3 votes

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  
asked by PBD10017 7 votes
answered by perry 7 votes

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  
asked by Dam 19 votes
answered by Shane 15 votes

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  
asked by Ice 17 votes
answered by lehalle 9 votes

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  
asked by Matthias Wolf 69 votes
answered by statquant 47 votes

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  
asked by papercuts 2 votes

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  
asked by Michael Johansen 6 votes
answered by Marc Shivers 6 votes

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  
asked by nz_21 1 vote

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  
asked by spence.j.moran 1 vote

OIS example in Hull's book

In Hull's book (9th edition), on pages 202-203, there is an example for computing the payoff of an OIS that I am confused about. It says suppose in a US 3-month OIS the notional principal is \$100 ...

interest-rates interest-rate-swap overnight-index ois-swaps fed-funds  
asked by Xiaohuolong 1 vote
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