All Questions
21,397
questions
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11
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Deriving the greek Theta from Black-Scholes formula
I am deriving all greeks from BS, im just stuck at theta and im confused about it because depending on the page or forum i look at i see different formulas some shorter than others.
Using the formula ...
2
votes
1
answer
135
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How is this greek calculation meaningful?
For a swaption, the "Pricing And Hedging Of Swaptions" paper by Akume et al (2003) says:
I get that he's just taking the derivative of the swaption valuation formula (which is N * A * ...
- 21
0
votes
0
answers
23
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simulation of stock prices paths
in my work I want to run a monte carlo simulation for stock price paths in high-frequency framework.
is it reasonable to set the initial midquote of the bid-ask prices equal to the initial stock ...
- 13
0
votes
0
answers
35
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Floating side value of a swap [duplicate]
I have some trouble to understand on valuing the floating side of a swap.
In my book, the value of floating side at the time t is;
$$ P(t,T_0) - P(t,T_n) $$
Where $$ P(t,T_n)$$ denotes the value of ...
- 1
0
votes
1
answer
34
views
Trading term structure of skew
Is there a way to trade IV skew between two maturities? For example, bull put in near maturity and bear put in far maturity.
- 1
0
votes
0
answers
41
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Nonlinear Dynamics in Finance [closed]
I would like to know whether studying nonlinear dynamics and control is useful or not for quantitative finance and which are the main applications of this field in the financial framework.
1
vote
1
answer
56
views
Change of measure when the underlying dynamic is Ornstein-Uhlenbeck
Let the $r$ riskless rate to be constant. Let's consider the following underlying dynamic under the $\mathbf{P}$ “physical measure”
$$dS_{t}=\mu_{t}S_{t}dt+\sigma_{t}S_{t}dW_{t}^{\mathbf{P}},$$
where $...
- 193
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answers
32
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Correlation risk between protection (seller) and reference entity
I am learning about central clearing.
In my understanding, CDS are usually cleared via central clearing.
But at the same time I heard that in case of too much correlation such as US bank selling ...
- 3
0
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0
answers
56
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Quanto CDS pricer in Python
I am sales and would like to grasp rough levels of quanto CDS, such as BMW denominated in USD, without askin traders each time. What i'm thinking is to calculte it using Python.
But i cannot build up ...
- 3
0
votes
0
answers
31
views
Derive foward put formula [closed]
I need help with this question: Derive a pricing formula for a forward-start put option on a dividend yield-paying stock, with dividend yield y, in which the strike price will be greater than the spot ...
- 1
0
votes
2
answers
31
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Basis risk between future and a non-dividend paying stock
I am a bit confused about the definition of basis risk, and how it applies to a zero dividend stock.
A study manual that teaches me about that mentioned basis risk happens when there are mismatches in ...
- 341
0
votes
1
answer
28
views
Is it possible to price a call option given a daily underlying returns distribution?
Apologies in advance if this problem is somewhat ill-posed. But I was thinking given the price of a call option can be formulated in terms of a implied probability density function at time $T$, would ...
2
votes
0
answers
75
views
Models for tick-by-tick / high-frequency data
I've spoken to one or two persons at some market making shops, and I'm under the impression that for modelling tick data, aside from the rise of ML, a pure jump process such as the variance gamma ...
- 1,644
1
vote
0
answers
55
views
Maximising skewness for a portfolio
I am trying to recreate the Mean-Variance-Skewness-Kurtosis-based Portfolio Optimization work done by Lai et Al. (2006) (link).
I reached the part where in order to run the PGP model, you need to feed ...
- 11
1
vote
0
answers
59
views
How did Jim Gatheral come up with the SVI parameterization?
I know it has nice properties relating to Roger Lee's moment formula and the Heston model asymptotics, but I am just curious how Jim Gatheral came up with this formula in the first place. I read a ...
- 171
0
votes
0
answers
25
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Does the Binomial Options Model use a discrete or continuous compounding rate for its risk-free rate? [closed]
If I am given a risk-free rate of 10% compounded annually, must I convert this discrete compounding to continuous for use in the binomial option model?
2
votes
0
answers
76
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What theoretical distribution best fits the vix? [closed]
What theoretical distribution best fits the vix?
- 29
0
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0
answers
21
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Static Multiperiod Optimal portfolio
I am interested in optimal portfolios in a multi-period setting
To be more precise, say I have an investment horzion over $T$ periods and the market consists of $N$ assets. I simulated future asset ...
- 1,436
0
votes
0
answers
30
views
Stock clustering for Statistical Arbitrage Trading
Has ML based stock-clustering been practically adapted by the industry in arbitrage trading strategies like pairs trading for forming pairs instead of other traditional techniques like cointegration?
0
votes
1
answer
58
views
Some US AAA Corp are borrowing below UST for 10yr paper. What could be the reasons for this?
Any particular situations which can lead to this?
- 23
0
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0
answers
39
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Swap IRS - SOFR lookback
I have a fixed-float swap valuation to realize. The floating leg is referenced to SOFR with a 10 days lookback. The first coupon has already started, on 01/09/2023, and ends on 01/12/2023. The first ...
- 1
0
votes
1
answer
53
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EM currency bond pricing and swaps
EM ccy denomimated bonds (such as MXN, TRY) are often priced using cross currency swap rate (MXN-USD, etc).
I guess this is because their fundings are in USD.
My question is who are the participants ...
- 3
1
vote
1
answer
68
views
Volatility Mismatch in SABR Calibration
Problem Statement
Hi, I am trying to calibrate SABR on a new asset, which is not 'forward swap rate'. While using the vanillaSABR calibration, I find the parameter 'sigma' (one of model parameters, ...
- 11
2
votes
2
answers
184
views
Calculating DV01 for Treasury Futures with CTD switch risk
With rates rising, certain contracts, such as the USZ3, are prone to frequent CTD switches with sometimes large differences in the DV01 of an underlying CTD. Does anyone know of any resources for ...
- 23
0
votes
2
answers
76
views
How does the recent increase in shorting of US Treasury futures explain the spike in yield for US Treasury?
My understanding is that HF that short the US Treasury will need to buy the spot in order to deliver at the maturity date. Won't that increase the demand for UST and reduce yield instead?
- 21
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0
answers
24
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Pricing illiquid CSO with Monte Carlo
I'm trying to price a CSO on Soyoil. The instrument is extremally illiquid.
To proceed, I simulate both leg by Monte Carlo, using the historical correlation over the 75past days and their respective ...
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-2
votes
0
answers
38
views
VBA excel code for LMM+ [closed]
I am looking for the VBA excel code to implement the interest rate spot curve for an Economic Scenario Generator
- 9
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votes
0
answers
37
views
Combination of bid ask of two instruments
You have 2 instruments: X in which you are quoting 35 @ 40 and product Y in which you are quoting 15 @ 30. We want to make a market on the product X+Y. What is the bid-ask spread you will quote?
Got ...
- 43
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0
answers
25
views
Commercial bank mortgages schedule calculation
I need to calculate the schedule of a fixed rate mortgage and an adjustable rate mortgage.
Is there an open source library, preferable in python, that already makes these calculations? I tried ...
- 40
0
votes
0
answers
88
views
Backtesting One-Factor HJM model with selling European Receiver Swaption
I am attempting back test the performance of a model - namely the Musiela equation used to model instantaneous forward rates with constant time to maturity:
$$r(t,x)=r(0,x)+\int_0^t\left(\frac{\...
- 43
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0
answers
42
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Building SOFR curve - explanation of the formula used
I am studying a previous post on how to build SOFR discount curve here Libor transition: Building SOFR discount curve
However, I struggle to understand the below ...
- 361
1
vote
0
answers
28
views
Bloomberg SWPM: Floating Leg cash flow [duplicate]
I am trying to replicate mechanism behind SWPM function of Bloomberg.
As you can see from the screenshot from my excel file, I am able to find exact cash flows from excel file (it not discounted), ...
0
votes
0
answers
54
views
Loan modelling using Opensource risk engine (ORE)
The problem is to calculate the cash flow schedule for a simple fixed rate loan where principal amortization periodicity is not equal to interest payment periodicity. For example, amortization is ...
- 1
0
votes
0
answers
22
views
Understanding the application of Asset-Correlation to credit risk models
Suppose we have a portfolio of $n$ credits. In order the estimate the Portfolio Value at Risk (99,9) we use a standard vasicek model with the Ability to pay variable $A_i=\sqrt{\rho}x+\sqrt{1-\rho}z_i$...
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9
votes
11
answers
5k
views
Probability Puzzle from a Quant Interview
An urn contains 20 balls colored each of the 7 colors of the rainbow (140 total balls). We select balls one-by-one without replacement. Given that in the first 70 draws we selected 5 more red balls ...
- 172
1
vote
0
answers
38
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Delta sensitivity calculation according to SIMM
I have come across below link on how to calculate the delta sensitivity for interest rate product
https://ibkrcampus.com/ibkr-quant-news/delta-sensitivity-of-...
- 740
0
votes
1
answer
54
views
Confusion about payoff for an option [closed]
My teacher said that the payoff of a put is $\mathrm{max}(K-S_T, 0)$, where $K$ is the strike price and $S_T$ is the spot price at maturity. Why isn't it $K$ if $K-S_T > 0$ and $0$ otherwise (i.e. $...
- 103
0
votes
1
answer
51
views
Test significance for information ratio
Suppose that we have an estimated Information Ratio $IR^*$ calculated from the relative returns between a portfolio and a benchmark.
I am looking for a way to quantify the uncertainty of this ...
- 1
0
votes
0
answers
34
views
How to construct the probability of default (PD) with not much historical data (<1 year)?
If a financing company has a new funding program, is there a statistical method that can be used to construct a probability of default (PD) for IFRS 9 ECL calculation purposes? Considering that ...
0
votes
0
answers
93
views
S490 curve: Bloomberg zero swap curve calculation [closed]
I have given a task of replicating ICVS S490 swap zero curve of Bloomberg. Unfortunately, even though I get close numbers using their white paper, I am not able to find the way that they are getting ...
11
votes
8
answers
4k
views
What are some factually incorrect quantitative finance answers generated by AI?
One question and AI-generated response per answer. Community wiki flag and an explanation of why the AI response is wrong are encouraged. The AI program can optionally be identified. Including the ...
0
votes
1
answer
137
views
Repo/Fwd/Spot/Bond Futures
I have a slight confusion with regards to what price the repo rate impacts.
Assume the repo for a particular bond richens. My current thought process is, spot should also richen (as now that bond ...
- 11
0
votes
0
answers
63
views
Performance Swaps
I am trying to find more information regarding performance interest rate swaps. The only source that I have found so far after digging extensively is the following. However, I am not as satisfied as I ...
- 31
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0
answers
27
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Computation of CouponLegNPV using IsdaCdsEngine
I've recently been trying to work on and understand the concepts around CDS. By making simplifications (flat hazard rate, flat forward rate), I wanted to compare the values I could obtain by manual ...
- 1
0
votes
0
answers
56
views
Genetic Algorithms and Genetic Programming in Computational Finance [closed]
I'm curious if anyone within this community has read "Genetic Algorithms and Genetic Programming in Computational Finance" by Shu-Heng Chen. Would you recommend this book?
Additionally, I'm ...
-1
votes
1
answer
46
views
How to calculate weighted return of two stock prices? [closed]
I have 2 list of returns
A = [0.00538467, 0.04701923, 0.00170811,...]
B = [0.00299271, -0.0060228 , -0.07761099,...]
I take long position in A and short in B.
How to calculate the total return and ...
- 99
0
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0
answers
51
views
Is there another method besides DCF to evaluate a fixed-rate bond?
I am a beginner who recently found a job in the FICC sector. My superior gave me this question to think about: 'We have a bond with a 5% coupon rate and a maturity of 10 years, and the discount rate ...
- 1
1
vote
1
answer
64
views
Calibration of Heston using implied vol as $v_0$
I am looking at the difference if you calibrated the heston from market data using objective function minimisation.
In scenario 1, I calibrate all the parameters from market data
In scenario 2, I ...
4
votes
2
answers
261
views
Calculation of Cashflows Using ISMA Day Count in Fixed-Rate Bond
I'm working with a fixed-rate bond in QuantLib, and I have set the day count convention to ISMA, but I would like to understand how this specific day count convention is used in the calculation of the ...
- 47
1
vote
2
answers
206
views
Selling Strangle or Selling Straddle
Assuming positive skew premium & continuously delta hedged, is selling OTM strangle always a superior strategy than selling ATM straddles (hence P&L is theoretically simplified as 0.5 * Gamma *...
- 11