All Questions

For the training of a machine learning model I need to add additional features (macro variables), and these features are correlated. I need to run the model N times adding these features with random ...

I want to perform a BHAR event study. For that, I subtract the compounded returns of a benchmark portfolio from the respective stock. Is my assumption right, that I can simply take any underlying ...

I am an applied math postdoc and I have been presented with the option of leaving academia to work in high frequency trading. I wanted to get a feel for the field and the theory underlying it so I ...

I am trying following code, zerorates which is received is different than I expect. Can someone suggest where am I going wrong? ...

Let's denote the Implied normal volatility (Bachelier) as $\bar{v}$, and the implied log-normal (Black Scholes) as $v$. When everything else is known (spot, strike, maturity, rates etc) how can you ...

Recently I am reading about SOFR (Secured Overnight Financing Rate), which is projected to replace LIBOR to be the reference for risk-free rate in the market. But I still don't understand or imagine ...

The volatility $\sigma$ of an Ito process $dS_t = r S_t dt + \sigma S_t dW_t$ is not the square root of its variance. But you often hear that "volatility = standard deviation". What's going on here?...

Consider an Ito process $dS_t = f(t,S_t) dt + g(t,S_t)dW_t $ What is the reason that we can compute the variance as: $\sqrt{VaR(S_t)} = \frac{(dS_t)^2}{dt}$

I'm developing a dynamic portfolio optimization procedure based on the implementation of the Modified sharpe ratio. The mentioned ratio depends, among other factors, on the skewness and kurtosis of ...

I am learning the basics of quant trading from quantconnect's tutorial Confidence Interval and Hypothesis Testing. I understood the first part of the article but I dont understand "Hypothesis Testing"...

I was reading about Ito's formula and Girsanov theorem, but I am still struggling to grasp how in reality these are combined to compute the price of an option. What are the main source to understand ...

I am reading some questions in Joshi's book on Quant Job Interview Questions, and am perplexed at some of the questions in the book. Some of them are extremely easy (like, "explain the Black Scholes ...

(Feel free to suggest the correct Stackexchange community - or otherwise - if this is not the correct one) When trading financial markets, a gain of x%, won't ...

Let $P(t,T)=\mathbb{E}_{Q_{R}}[e^{\int^{T}_{t}r(u)du}|\mathcal{F}_{t}]$ be the price of a 1-euro zero-coupon bond with maturity $T$ and $r(u)$ the interest rate process. Consider the the forward rate $...

I am new to the concept of Exchange Futures for Physical (EFP). According to some sources (link), An Exchange for Physical (EFP) is a transaction involving the simultaneous exchange between two ...

I learned mathematical finance from Bjork's Arbitrage Theory in Continous Time, and never once did I encounter the "quadratic variation"-thingy with the angle brackets. So now that I am reading ...

While this may be awkwardly-titled, I hope that my question becomes clearer upon reading. So this is what I gather about Factor Models: they are statistical models set up to explain the returns, ${...

Assume that $c_t$ is the UNDISCOUNTED price process for a European call option in Bachelier model. In Bachelier model call option pricing formula the formulas is discussed. The undiscounted value ...

I am currently working under estimating a Yield Curve. From my understanding common procedures to construct a yield Curve like Nelson Siegel have the input of a series of different zero rates and ...

I'm trying to solve for a maximum sharpe ratio portfolio in the fixed income space. To do so, i use CVXPY in python. I use this Paper as reference. This is my "setup": ...

I'm trying to use mean directional accuracy to evaluate my directional predictions in back-test, but it can't deal with realised directions which are 0, due to the comparison of the signs of ...

When there are transactions costs, we are in a situation of incomplete market. What does the modified volatility of Leland (Option Pricing and Replication with Transactions Costs, 1985) bring us? can ...

I'm looking for a way to calculate the total management fees paid by a customer during the last 12-months. I'm taking the following assumptions: The total accumulation as of today is A The monthly ...

The minimum variance hedge ratio is given by $h=p*\frac{\sigma_S}{\sigma_F}$. I was wondering if you wanted to calculate the S.D yourself and the spot prices were in Dollars per barrel while futures ...

Newbie here, trying wrap my head around on why this doesn't add up: Calculating the discounted cash flow of a perpetuity paying $1000 per year, 15% discount rate and 5% growth. If I calculate from ...

Like to find how to trade S & P using Ichimoku

Quuestion1. I make a solution $r(t)$ used by Ito's lemma $r(t)=e^{-a t}r(0)+\int _{0}^{t}e^{a (s-t)}\theta (s)ds+\sigma e^{-a t}\int _{0}^{t}e^{a u}\,dB^{1}(u)$ Is this right? and I try to make ...

I have a machine learning model trained with a list of mortgage features that include macro variables where the field to predict (the label) is "Mortgage Defaulted" = 1 or 0 (Yes or No). Now, I need ...

I have a small question of interest. During my classes at the university I have learned about the Nelson-Siegel method to fit interest rate curves. With this method you are able to determine interest ...

What is the financial interpretation that the derivative of the Black and Scholes equation is equal to 0? St n(d1) - Xe^-rt n(d2) = 0

Could you explain to me in words (no formulas) the concept of the Least Squares Monte Carlo method to price an American style option?

I need to test an algorithm for large-scale data in stocks market. I wanna know how many stocks are there all over the world and the data source.

Consider the SDE $$dr_t = (b-ar_t)dt +\sigma dW_t, \text{with } a; b > 0.$$ Let $$F(t; r) = E(\exp(-\int_{t}^{T}r_sds)| r_t = r).$$ (F can be interpreted as price of a zero coupon bond with ...

Not a quant question, but not suited for Money stack exchange... I've heard rumblings of a trend of pension funds co-investing with private equity and was curious as to the reasoning of that strategy ...

Is there any way to price American Callable Bonds (those which can be called on any date before expiration) other than basic CRR interest rate trees, since they won't be accurate enough to give ...

Whether the bootstrapping is a multicurve one or not, one can use futures quotes. One link these quotes to corresponding (synthetic) forwards (that can be expressed as known functions of zero-coupons) ...

Should it be the coupon associated to the funding curve of the asset? Thanks.

The boundary conditions for Discrete Type Barrier (e.g. Up-and-Out) are: - Dirichelet boundary condition (set to 0 when spot is bigger than Barrier) on Barrier event dates - Otherwise (the other sides ...

Apologies for this newbie question. Given the following quarterly GDP growth: ...

I am trying to fit equity option implied vols using SVI model in Java, and I am using apache math commons library. Some of the option expiries fit very well, but others are completely off, and I am ...

Which podcasts are interesting to listen too for quants? If you recommend one, why?

I wonder in how far risk-factors and autocorrelation are related. Detected autocorrelation in stock returns is often discarded as not being profitable and thus not impacted market efficiency. ...

When my limit order gets filled, the price almost always moves against me due to adverse-selection. However, given 'enough' time the price may yet move back in my favour. Has there been any study ...

I am having trouble to understand the distinction between the EMH and random walks. If I understand correctly, the EMH states that all available information is incorporated into prices, which ...

I need to refresh all the pricing theory. Is there anything like a crash course with practical and intuitive explanations? I will provide any further information. I am a mathematical engineer. I am ...

Peter Jäckel has developped a method to compute implied volatilites from option prices, called "by implication", see the papers : By Implication Let's be Rational on its website -- as well as a ...

I'am trying to run a model like mfGARCH package but with multivariate, not univariate like mfGARCH does.

As stated in the question I have a problem with calculating the implied volatility for in the money put options I have a data set of 2.6 million American style plain-vanilla call and put options. For ...

I have a very basic question. Why are there many different zero curves for a given currency/market? For example, there are zero curves constructed using gov bonds, swaps, STIR futures, OIS, Inflation, ...

I am halfway through "Advances in Financial Machine Learning" by Marcos Lopez de Prado. I understand that a time series like stock prices can be transformed to make it sufficiently stationary. ...