Questions tagged [finance]

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1answer
43 views

relationship between the expected rate of return and the value measured by the beta factor

Assume that only two companies are listed on an effective capital market: companies A and company B. Capitalization (market value of all shares) of both companies is the same. Expected rate of return ...
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0answers
41 views

Meta-Question: Why do a lot of people in quantitative finance get in trouble? [closed]

I'm trying to understand the causal factors here. It seems on general, people in finance get into trouble with the law. Whereas people in tech don't get into as much trouble. What's up with that?
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0answers
26 views

Best option to buy? Explain your answer [closed]

Options A & B sell for \$5, for an underlying stock which currently sells at \$30. Both mature in 1yr, & risk free rate=6%, variance=30%. Upon maturity, exercise option A for \$25, and option ...
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2answers
1k views

Which process is the most commonly used for modeling stock prices?

I'm thinking of writing a master's thesis about pricing options using Levy processes, but I wonder if these processes are actually used for modeling stock prices or not (and which specifically)? And ...
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1answer
59 views

is it possible to get minimum variance line having only covariance matrix?

Hey I have covariance matrix: $$C=\begin{pmatrix} 0,01 & 0.01 & 0\\ \\ 0.01 & 0,02 & -0.01 \\ \\ 0 & -0.01 & 0,03 \end{pmatrix}$$ So the variance of porfolio is: $$\...
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6answers
30k views

Building Financial Data Time Series Database from scratch

My company is starting a new initiative aimed at building a financial database from scratch. We would be using it in these ways: Time series analysis of: a company's financial data (ex: IBM's total ...
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1answer
116 views

Cleaning of high-frequency data

In the paper "Realized kernels in practice: trades and quotes" by O. E.Bandorff-Nielsen etc. cf. https://onlinelibrary.wiley.com/doi/full/10.1111/j.1368-423X.2008.00275.x in the section dedicated to ...
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1answer
61 views

return volatility calculation with respect to different time period

in the BS model, if an option has 3 year expiration periods, and if the time of maturity of that option is calculated( periods between the grant period 2011-9-15 and exercise periods 2014-9-15 ), and ...
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1answer
61 views

Question about CAPM Betas - Causes of Beta Movement Query

CAPM betas are measures of systematic risks, which include things like the exchange rate, inflation, interest rates, etc. What I'm confused about is described below: E.g. suppose I'm looking at one ...
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1answer
175 views

Mean Variance Investment problem

I attach a part of a paper explaining how the weights of a market portfolio are derived. I do not understand how equation 5 has been derived and, in particular, where the zero beta portfolio's return ...
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2answers
166 views

Why is there inconsistency in WACC vs unlevered return?

To evaluate an enterprise we can discount free cash flow by either the unlevered required rate of return or the WACC. With Tax we have: $WACC=R_e \frac{E}{E+D}+R_f\frac{D}{E+D}(1-t)$ where $R_e$ is ...
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0answers
8 views

Bank deposit insurance beyond FSCS limit in UK

For companies, the Financial Services Compensation Scheme (FSCS) provided by the Bank of England only covers up to £85,000. Is there an insurance or financial product that provides insurance above ...
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0answers
27 views

How can I find the payout ratio for this company?

I am doing this question that I couldn't find the payout ratio. For you, company equity beta is unknown, it has a target i.e. current debt to book equity ratio: 0.5 and target debt to market ...
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0answers
44 views

Issue with solving American call option questions

Here are the questions: I tried using DerivaGem, but I am not sure that I got the right result. Here are my attempts at solving the questions: a) Upper and lower bound: Is it correct? Not sure ...
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2answers
62 views

How to calculate 5 EMA

I am trying to understand the basics of finance indicators. I have made 15 minute ohlc candles for the past 50 days. Now if I try to calculate 5EMA, my doubt is ...
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1answer
343 views

Forward Contract Price on Zero Coupon Bond

I'm trying to calculate the forward contract on a zero coupon bond where the forward contract matures at t=4. The zero coupon bond matures at t=10 and has a face value of 100. The price of that bond ...
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0answers
36 views

Results of Fama MacBeth regression

I have run Fama MacBeth cross section regression of of Excess Return of stocks on Idiosyncratic volatility, the log of market capitalization, book to equity ratio and Beta. I'm getting all significant ...
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1answer
63 views

R - Portfolio construction based on own calculations, with rebalancing of components

I have used random forest in R to get probabilities for stocks being in a certain class. With those probabilities i would like to construct portfolios containing the 5 stocks with the highest ...
1
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1answer
91 views

How to manage theta, gamma, vega, and delta risk in options market making simulation

I'm just starting to learn how to trade options and as part of an algorithmic options market making simulation I have risk limits for the greeks (gamma, vega, delta, and theta). There are 9 strikes ...
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0answers
20 views

Asset Pricing and Stochastic Discount Factor: Do well-informed investors only buy efficient portfolios?

I'm currently dealing with the following question: In Asset Pricing, well-informed investors know about the concept of the efficient frontier. Does this mean that they only invest in portfolios that ...
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1answer
41 views

Do the wallet weights with the minimum variance need to be nonzero?

I wonder if we have n risky assets, does the portfolio with the minimum variance always have non-zero weights or can any weight be 0?
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3answers
566 views

What are the biggest new advancements in the field of quantitative finance in the last 10 years?

Examples like new research or findings but also older research or findings actually starting to get implemented. Is machine learning starting to get a foothold in finance? Are there any new practical ...
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1answer
65 views

Determining Value at Risk of a Poisson distribution

If my discrete random variable had a poisson distribution with both moments say equal to 10, how can I find the Value at Risk for a 95 percent confidence interval? I have seen that I need to ...
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1answer
86 views

Relation of risk-neutral probability measures to arbitrage opportunities

Could someone describe how risk-neutral probability measures are linked to arbitrage opportunities and also to whether or not a market is complete? I've been asked this question and am unsure how to ...
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0answers
27 views

feasible set if short selling of risk free asset is not allowed

I have 3 risky assets and one risk-free asset. From them I have to determine what the set of portfolios achievable looks like if there is short selling of risk-free asset is not allowed. What does ...
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0answers
53 views

CAPM and the Fama-MacBeth (1973)

I need to conduct the Fama-MacBeth (FM) procedure for my thesis to test the ability of the six-factor model to predict future expected returns. In univariate regressions of expected excess returns on ...
2
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2answers
48 views

Can the total market cap of a country increase beyond its total wealth?

The total wealth of the USA (2019) is $106 Trillion. [1] The total market capitalization of US companies is $37.6 Trillion. [2] Okay, other countries can invest in US markets more than we invest in ...
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0answers
24 views

How to annualize alpha calculated from a daily regression?

forgive the super beginner question. I have the following code. bench_return_data and my_return data contain daily returns. I am performing a linear regression between them. Am I calculating ...
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1answer
37 views

CAPM Model, is this exercise done correctly?

Hey i need to know if the task is done correctly, please help :) Standard deviation of the rate of return on the market portfolio is equal to $\sigma_{MP}=1,5\%=\frac{15}{1000}$. I have portoflio ...
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2answers
79 views

What the … are all of you studying/working for asking such questions? [closed]

Sry, I'm new here. But I am just astonished by all those sick questions and answers you ask/provide... Are most of you studying mathematics or are your finance programs that good, that you can ask/...
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1answer
154 views

Abstract algebra in economics and finance

Are there any applications of abstract algebra (group theory, rings, fields etc.) in any branch of either economics or finance?
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1answer
59 views

Vega of binary option

I'm calculating the greeks for a hypothetical binary option, and I'm getting a symmetrical parabola for the vega's of both put and call options that are OTM, ATM, and ITM. Both of them dip into ...
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0answers
31 views

Using GOOGLEFINANCE function on google sheets to get historical marketcap

I have a question related to accessing historical data. My first attempt to grab historical data for a few companies was using Google sheets and the GOOGLEFINANCE function. Unfortunately, it seems to ...
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0answers
186 views

where can I get the intraday data for S&P 500 [duplicate]

I am trying to analysis the price of S&P 500 during the flash crash in 2010. Where can I get the data?
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0answers
13 views

CS-Regression Three Factor Model

1# When would the three risk factors market, size and value be priced in the FF Three factor model when performing cs-regression? How do you know that they are priced? 2# How would it be possible to ...
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2answers
214 views

When would open interest equal trading volume?

I know the difference between open interest and trading volume. Open interest is the number of contracts, long or short, outstanding. Trading volume is the number of contracts traded in a day. ...
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3answers
174 views

Why multiply stock returns with $\sqrt{252}$?

When converting daily volatilities to annual volatilities one need to multiply with $\sqrt{252}$. But I found this piece of code this piece of code who calculate log-returns in the following way: In ...
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1answer
95 views

how to price options in reality [closed]

I'm getting to know the Black Scholes model, which apparently is no longer suitable for pricing options on the market. I would like to write a Master's thesis on option pricing but I do not know what ...
0
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0answers
19 views

Arbitrage and dominant strategies : Linear Pricing measure

Given a monoperiodic setting, my professor defines that if there is no arbitrage opportunity, it means that there is no dominant strategy. This is clear. However he defines that if there is NO ...
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1answer
82 views

FX Swap P&L question

I am currently trying to compute the P&L of a FX swap and to understand it's implications. Let's say when we sell 1M EUR spot eur/usd at 1.08 and at the same time buy a one month month forward ...
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0answers
30 views

Fixed income management problem

First of all, hope everyone is safe and sound. I would like to describe the following scenario and my thinking Welcome any comments on my thought process!!! 3 swaps outstanding Pay fixed 100mln, ...
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2answers
1k views

What are the assumptions in the first-stage of Fama-MacBeth (1973)?

According to the CAPM, the expected return of asset $i$ is: $E(Z_i) = \beta_{im} E(Z_m)$ where $Z_m$ is the excess return on the market portfolio, and $Z_i$ is the excess return of asset $i$ over ...
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2answers
295 views

Pricing In Real Life vs Theory

When selling/buying vanilla call options, do one price them according to some pricing formula (i.e Black-Scholes)? Or is the only point using pricing formulas to find the implied volatility and then ...
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0answers
32 views

What is a call-spread and its formula?

I am attempting Mark Joshi's The Concepts and Practice of Mathematical Finance. In B.3 Project 1: Vanilla options in a Black-Scholes world, he asked the following question. We need to be sure that ...
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0answers
17 views

How to calculate the revenue yield?

Origination fee is charged as 3.0 % of average funded loan size. How to calculate the revenue yield in the table below?
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0answers
47 views

Annualizing the Sharpe Ratio

I am doing some calculations and I am working currently with the weekly Sharpe Ratio. Can I annualize the Sharpe ratio by multiplying with the square root of 52? Greetings!
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1answer
45 views

What should I use as a proxy for the risk-free rate? And how do I transform the yearly risk-free rate to the weekly risk-free rate?

In order to calculate the Sharpe Ratio, I need the risk-free rate. What is the most convenient proxy for the risk-free rate? And how do I transform the yearly risk free rate to a weekly risk free rate?...
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0answers
29 views

xperi tivo and metis buyout deal

Anyone have a feeling as to what is going on here? Trying to follow along to learn more ... looks like Metis has offered all-cash for 20% premium on current share price but board is blocking. I think ...
0
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1answer
66 views

How to calculate Money-weighted Rate of Return when there are multiple negative cash flows during investment period?

I know that when there are multiple changes of sign in the sequence of cash flows of a project, the project may have multiple IRR, which render this criterion impractical. Therefore, in such ...
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0answers
48 views

Equilibrium with H agents when some of them are not aware of some assets

Assume there are H agents with constant absolute risk aversion $\alpha$. There is a risk-free asset, and two risky assets with distribution $S1$ ~ $N(\mu; \Sigma)$, where $\mu \in \mathbb{R}^2$ and $\...

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