Quantitative Finance Stack Exchange Community Digest

Top new questions this week:

Quantitative finance for physicists

I am looking for good books to learn quantitative finance. As I have strong background in physics, I would appreciate introductions that do not hesitate to show the equations, but in the same time ...

finance-mathematics statistical-finance

Black-Scholes market and payoff with integrals

I am struggling with the following exercise: Prove that on Black-Scholes market, with some parameters $r, \mu, \sigma >0$, a payoff X=\int_{0}^{T}\ln ...

black-scholes replication payoff

What is Dual Curve Bootstrapping? And how to do it, with an example?

I am starting to explore this area. My ultimate aim is to build a 3 month LIBOR forward curve. 1) I wish to know what exactly 'Dual Curve Bootstrapping' is (If someone could explain it in clear ...

yield-curve interest-rate-swap libor bootstrapping multicurve

Convexity of an American put option

Is the price of an American put on an underlying without dividend convex with respect to the strike?

american-options convexity

Numeraire correlated to the traded asset

The Fundamental Theorem of Asset Pricing states that: \begin{align*} \frac{X_0}{N_0} &= \mathbb{E}^N{ \left[ \frac{X(t)}{N(t)}|\mathcal{F}_0 \right] } \end{align*} The usual conditions apply ...

option-pricing asset-pricing martingale numerairechange

Multiple Risk-Neutral measures in incomplete market

This question is in regards to incomplete markets where multiple risk-neutral measures exist. I am a little bit confused by this idea. Say we have an incomplete market with only one stochastic process ...

risk-neutral-measure risk-neutral

Just wondering any algo strategy popular for vanilla bond trading?

I got extensive experience on algo trading for cash equity, FX, so just wondering any algo strategy popular for vanilla bond trading?

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

What are some useful approximations to the Black-Scholes formula?

Let the Black-Scholes formula be defined as the function $f(S, X, T, r, v)$. I'm curious about functions that are computationally simpler than the Black-Scholes that yields results that approximate ...

options option-pricing black-scholes optimization

Is "eoddata" a good data source?

Not sure if this is a relevant question for site, but I am looking to move to www.eoddata.com as my data source. If anyone has used it, can you tell me how the data quality is ? I am currently ...

data market-data

What is an efficient data structure to model order book?

What is an efficient data structure to model order book of prices and quantities to ensure: constant look up iteration in order of prices retrieving best bid and ask in constant time fast quantity ...

limit-order-book market-microstructure

How to calculate stock move probability based on option implied volatility and time to expiration? (Monte Carlo simulation)

I am looking for one line formula ideally in Excel to calculate stock move probability based on option implied volatility and time to expiration? I have already found a few complex samples which took ...

options probability calculation

What's the difference between PV01 and DV01 of a bond?

Seem to be confused over the difference between PV01 of a bond and DV01 of the bond. PV01, also known as the basis point value (BPV), specifies how much the price of an instrument changes if the ...

interest-rates

how to calculate a cross-currency swap in basis pt?

This question has been bugging me for awhile now and I've been trying to find a definite answer, however, no avail... My question, in specific, relates to the USD/CNH CCS rate. From what I understand ...

fixed-income fx interest-rate-swap

Why are cashflows "modelled backwards in time"?

A am currently reading a manual on how to use some actuarial modelling software to project the expected liability payments made under an annuity contract. In this guide, the following statement is ...

forecasting models annuity
 asked by John Smith 1 vote

Does simulating price as GBM automatically implies risk neutrality?

I am using a dynamic programming approach to price European options where formulate the pricing as a discrete-time continuous-space Markov Decision process. The MDP is risk-sensitive as in I don’t ...

option-pricing risk-neutral-measure
 asked by Dhruv Mahajan 1 vote

Applying GRS-test on non-normal residuals with autocorrelation

Is it valid to apply GRS-test (Gibbons, Ross and Shanken 1989) on non-normal and autocorrelated residuals? I got residuals using 10 test-assets regressed on 3-factor and carhart. If it is valid, how ...

asset-pricing econometrics