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Top new questions this week:

Estimate yield of coupon bond given yield of zero coupon bond

Suppose that now is August 2006 and we have the following zero-coupon bonds: Maturity: August 2007, Price: 95,53 ...

bond bond-yields zero-coupon term-structure  
asked by Igor Igor 2 votes
answered by Alper 0 votes

backtesting guide for research

I am a master student in finance and I am working on my portfolio management thesis. Within my thesis I will have to backtest a portfolio strategy for a balanced portfolio. I am looking for a guide/ ...

portfolio-management portfolio-optimization backtesting simulations  
asked by WhyAmIHere 2 votes
answered by Pleb 4 votes

How does the cryptocurrency market rely on USD Tether?

The core of my question comes down to wondering what happens in the following scenario: Consider a situation where it turns out that USDT (Tether) is actually not backed by any assets, which would ...

cryptocurrency  
asked by quanty 2 votes

Double sort portfolios

I am studiying the impact of two variables A and B on stocks returns. When I sort the stocks individually, I find that the long-short portfolios returns obtained for A and B exhibit high correlation. ...

factor-models asset-pricing  
asked by Jorge Vinseiro 2 votes

Ansatz and HJB equation

Suppose we have an HJB equation of the form $$ \frac{\partial v}{\partial t}+\frac{1}{2}\sigma^{2}\frac{\partial^{2}v}{\partial s^{2}}+max_{\delta^{a}}\left\{ \lambda^{a}(\delta^{a})\left[v(t,s,x+s+\...

stochastic-calculus itos-lemma stochastic-control  
asked by sle 2 votes

Why this stochastic integral is calculated with Riemann integral

This picture is from Neftci's textbook, 'An Introduction to the Mathematics of Financial Derivatives, Third Edition' What makes me uncomfortable is equation [10.61] In above picture. In this equation,$...

itos-lemma stochastic-integral  
asked by user13232877 2 votes
answered by Kurt G. 5 votes

Testing a new factor for alpha

I am looking to understand more how once you have a factor (or signal) how you would go about testing this for alpha, I assume you could see if it has low correlation with other factors but how would ...

factor-models  
asked by Simon Nicholls 2 votes
answered by Kevin 2 votes

Greatest hits from previous weeks:

Formula for forward price of bond

What is the formula for the forward price of a bond (assuming there are coupons in the interim period, and that the deal is collateralised) Please also prove it with an arbitrage cashflow scenario ...

bond forward pricing-formulae  
asked by Randor 10 votes
answered by Helin 24 votes

Derivation of the tangency (maximum Sharpe Ratio) portfolio in Markowitz Portfolio Theory?

I have seen the following formula for the tangency portfolio in Markowitz portfolio theory but couldn't find a reference for derivation, and failed to derive myself. If expected excess returns of $N$ ...

optimization modern-portfolio-theory mean-variance  
asked by Slow Learner 17 votes
answered by John 13 votes

Integral of Brownian motion w.r.t. time

Let $$X_t = \int_0^t W_s \,\mathrm d s$$ where $W_s$ is our usual Brownian motion. My questions are the following: Expectation? Variance? Is it a martingale? Is it an Ito process or a Riemann ...

stochastic-calculus brownian-motion  
asked by Toofreak 43 votes
answered by Gordon 55 votes

Bachelier model call option pricing formula

Does anybody have the Bachelier model call option pricing formula for $r > 0$? All the references I've read assume $r = 0$. I don't speak French, so I can't read Bachelier's original paper.

option-pricing call  
asked by Galsunja 12 votes
answered by Gordon 16 votes

Stressed Value at Risk vs Value at Risk

Just read some materials about SVaR. Is there only holding period that changes in comparison to VaR methodology?

risk-management var  
asked by Ascorpio 2 votes
answered by AfterWorkGuinness 3 votes

What is the difference between volatility and variance?

How do volatility and variance differ in finance and what do both imply about the movement of an underlying?

volatility variance  
asked by Jaydles 33 votes
answered by Dirk Eddelbuettel 27 votes

A simple formula for calculating implied volatility?

We all know if you back out of the Black Scholes option pricing model you can derive what the option is "implying" about the underlyings future expected volatility. Is there a simple, closed form, ...

options black-scholes implied-volatility  
asked by jessica 46 votes
answered by yoonkwon 30 votes

Can you answer these questions?

CDS Option Pricing (Missing Index Factor)

I've read the OpenGamma paper https://quant.opengamma.io/CDS-Options-OpenGamma.pdf on CDS Options, and noticed a small discrepancy. So I wanted to double-check my understanding. In Section 6.4 the ...

options cds credit-derivatives cds-options  
asked by Phil-ZXX 1 vote

Interpreting Implied Volatility in Commodities Options

I understand that implied volatility is the expected volatility of an underlying contract in the Black option pricing model. This is easy to interpret for assets delivered at a point in time. But how ...

option-pricing implied-volatility commodities asian-option black76  
asked by CasusBelli 2 votes
answered by will 0 votes

Does random outperform naïve investment?

Randomly pick a (long only) portfolio from all possible portfolios over the S&P 500. The expected performance of this portfolio should equal the actual performance of the S&P 500. In contrast, ...

portfolio random  
asked by kinnla 2 votes
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