Questions tagged [finance]

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1answer
222 views

Natural Gas Modelling

In job adverts for natural gas/power trading it states knowledge of supply and demands models for these commodities. Does anyone know of any good papers or primers on S&D modelling?
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1answer
1k views

What if CAPM cost of equity is negative?

Dear Community members, I calculate 5 years trailing beta using capm. After that I calculate estimated cost of equity. However, what I have is that most of the observations have negative cost of ...
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1answer
108 views

Cost of equity proper way of calculation

Dear Community members, I need to calculate cost of equity following the following description: (Please, correct me if I misinterpret the meaning) "The annualized cost of equity, re(t), is ...
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1answer
68 views

Using interest rate as a discount factor in dividend discount model

In this paper, Galí and Gambetti calculate the fundamental value of asset price by using policy interest rate as a discount factor. I was wondering if the policy rate can be used in this kind of ...
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2answers
96 views

Distribution of data for GBM

I am running some Monte Carlo simulations with GBM on time series of commodity prices. First of all, the price data is annual between 1900-1950. I would firstly like to know if it is bad practice to ...
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1answer
196 views

Negative VaR equivalent Volatility (VEV) and its meaning?

Can a VaR equivalent Volatility (VEV) as defined by KID/PRIIPS law be negative and what does it mean if it has a negative value?
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1answer
233 views

Modelling interest rate

Hi I want to model two stochastic integrals in Matlab, which is given by $ x(t) = x(s) e^{-a(t-s)} + \sigma \int_s^t e^{-a(t-u)} dW_1(u)$ $y(t) = y(s) e^{-b(t-s)} + \eta \int_s^t e^{-b(t-u)} dW_2(...
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1answer
105 views

Dividend Yield Goyal and Welch (2008)

Following the Goyal and Welch (2008) stock return predictability data, does anyone know how they calculate the dividend yield from the dataset that they provide on Amit Goyals website http://www.hec....
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1answer
709 views

What rate to discount tax shield

On the appendix for Chapter 19 of Principles of Corporate Finance (BMA), it discusses the topic of "Discounting Safe, Nominal Cash Flows", in which case they argue that However, suppose we ask ...
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1answer
158 views

Day count convention Actual/Actual AFB; Factor for Date1 = 2004-02-28 and Date2 = 2008-02-28

The Actual/Actual AFB day count convention is explained on Wikipedia here. I'll condense the rules here the way I understood them. Factor = Days(Date1,Date2)/DiY If 29th february is in date ...
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1answer
570 views

The R-squared of the four factor model.

Why does papers such as Fama and French (2010) and Barras et al. (2010) construct equal weighted portfolio of all funds when they analyse the aggregate performance of mutual funds? They both report ...
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1answer
119 views

Online trading platform

Does anyone know a good online trading platform for simulation (no to make real money, but just to simulate a P&L) ? I would like to test myself as a bank trader (so sell side and not buy side) ...
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1answer
53 views

Are some stock prices not ARIMA(0,1,0) processes?

I am studying stock prices. Let Pt be price of stock at time t. While Pt is non stationary, the return, rt=log(Pt/Pt-1) is stationary. However, when I study on rt, I decide on an ARMA(0,1) without ...
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1answer
113 views

What is the best trading simulation platform for futures, swaps, options, etc.?

I've just started studying derivatives from the "Options, futures, and other derivatives - J.C. Hull" and I'd like to see how to do hedging and trading transactions through a simulation platform or a ...
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1answer
947 views

How to build Factor model like Fama & French (2014)?

I would like to conduct a study where I build a factor model based on the characteristics/variables I have collected about firms, using a couple of countries. I have acquired two Excel data files ...
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1answer
163 views

if you short sell? And Right issue has taken place, so Does Right issue has negative positions in Portfolio or not?

I am searching for exact accounting example of Stock right position in Portfolio when someone is short sell. Searched a lot over Google, contacted local Brokers as well..Didn't get any response. ...
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1answer
198 views

Monthly returns annualized vs annual returns [closed]

Lets say that I have a stock with annual returns, $a_i $ for year $i\in \left\{1,...n\right\}$ and monthly returns $m_{i,j}$ for month $j\in \left\{1,...12\right\}$. Lets define monthly returns to be ...
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1answer
537 views

For any efficient portfolio, does there exist another efficient portfolio which has zero correlation with it?

For any portfolio on mean-variance efficient frontier, does there exist a portfolio on the frontier which has zero correlation with it? I tried to play around with the covariance, by setting ...
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1answer
76 views

Firm Stock market

Let's say that I live in my own world, with 20 inhabitants. I own a firm called mc Donald's. ( my people purchase food there of course). Each income to mc Donald's gets into the firm bank. McDonald'...
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2answers
170 views

The meaning of risk-neutral pricing?

Assume that the underlying $S$ is some index, hence the risk-return $\mu=0$, where $S$ meets $$d S = \sigma S d W_t.$$ Let $V$ denote the price of the corresponding call option. To construct the ...
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2answers
215 views

Log-periodic power law model: is it a continuous or discrete-time process?

Are the log-periodic power law models used to predict financial market crashes continuous or discrete-time processes?
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2answers
1k views

Trading liquidity risk

I am trying to understand trading liquidity risk $\cdots$ "Trading liquidity risk occurs when an entity is unable to buy or sell a security at the market price due to a temporary inability to find a ...
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1answer
50 views

Measuring the surprise element of policy actions

Dear fellow community members, Here is the excerpt from Bernanke and Kuttner (2005) that I need to apply to gather my data. "A measure of the surprise element of any specific change in the Federal ...
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1answer
170 views

How do I find this Expectation?

I have an expectation given as: $\mathbb{E}\left(S_{T}\mathbb{1}_{S_{T}\geq K} \right)$ where $K$ is just an arbitrary number (i.e. the strike price, but that's unimportant) and $S$ can be modelled ...
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1answer
321 views

Put-on-call option confusion

So the question asks: Given a 3-steps Binomial Tree model with $S(0) = 50$, $U = 20%,D = 􀀀20%$, and $R = 5%$. A European call option has the strike price $X = 40$ and maturity time $T = 3$. Also, a ...
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1answer
105 views

Options and bond related to convexity

Relevant definition: Assumption 2.1 (No dominance). If the payoff $P$ of a financial instrument is nonnegative, then the price $p$ of the financial instrument is nonnegative. Notation: $T$ - the ...
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1answer
125 views

no arbitrage condition for paylater option

a paylater option has the folowing payoff: $(S_{T}-K)_{+}-P1_{S_{T}>K}$. To determine the fee P that the option holder must pay, we must write the non arbitrage condition. Why is it this: $E_{Q}[(...
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1answer
201 views

Negative risk neutral probabilities economic argument

We know of plenty ways to extract risk neutral distirbutions from option prices (for example Breeden Litzberger) but there is no real analysis on how to interpret negative state prices (Haug 2007 for ...
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1answer
91 views

What is more likely effect to call and put prices, respectively, if the stock price decreases by$1?

The current stock price is \$80.Call ,and ,put, options, with ,exercise ,prices, of $50 and 3 days to maturity are currently trading. What is more likely effect to call and put prices, respectively, ...
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2answers
57 views

Finding a stock traded at two venues

For a project of mine I need to find a stock that is traded on two venues, e.g. NYSE and NASDAQ, but could be others. So I ...
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1answer
78 views

Aggregating growth rates

I'm working on a simple forecast model that uses Cumulative Annual Growth Rate (CAGR) to project future growth, and I've run into an apparent paradox. The model includes multiple lines of business ...
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1answer
309 views

Cash flow diagram, interest rate inflow series

I have a econ midterm coming up soon and stumbled upon this question. My approach is: 2C=800/(1.12^2)+1200/(1.12^6)=125.71 or C=1245.71/2=622.85 But I have a gut feeling this is wrong. I believe the ...
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1answer
63 views

finance - using CAPM [closed]

The risk-free rate is 4%, and the expected return on the market portfolio is 12%. Using the Capital Asset Pricing Model: a. What is the risk premium on the market? b. what is the required return on ...
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3answers
667 views

I want to prove Determine the coupon rate $r$, such that the price of the bond, at $T_0$, equals its face value

Consider a coupon bond, starting at $T_{0}$ , with face value $K$, coupon payments at $T_1, . . . , T_n$ and a fixed coupon rate $r$. Determine the coupon rate $r$, such that the price of the bond, at ...
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1answer
165 views

Company rank within an industry

I'm looking at the list of companies in the S&P 500 Pure Value Index. For each firm, I want to obtain the dividend yield industry percentile rank and the PEG ratio industry percentile rank. I've ...
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1answer
93 views

How to reason about leverage in terms of elasticity

Return of an investment for a given period is by definition: $$r = \frac{P}{W_0} - 1$$ where $P$ is the price of the investment at the end of the period, and $W_0$ is the initial investment. I want ...
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0answers
21 views

Calculating management fees paid during the last 12 months [closed]

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 ...
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0answers
12 views

Estimate the off balance sheet exposures of a banking book, based on limited data

I am doing an analysis on Off Balance sheet items on a bank. Only data I have is authorized amount and outstanding balance for all the loans the bank currently has. Can I simply take the difference ...
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0answers
24 views

Error in Yahoo! adjusted prices - The case of AAPL [duplicate]

One of my students reported that return for AAPL between April 30, 2014 and June 30, 2014 was different than what was shown in my class notes which were prepared in early 2016. I investigated the ...
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0answers
30 views

Using CFNAI index for identifying sample periods

I'm doing my Thesis on Asset pricing models and I would like to find out the effects of business cycles on the performance of asset pricing models for industry portfolios. My initial idea was to ...
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1answer
37 views

How to compute the Net Leverage Ratio for a mortgage [closed]

In the introduction to the 4th video of lectures series Finance I on MIT Opencurseware (https://www.youtube.com/watch?time_continue=166&v=hyc8h5T76BE), Andrews Lo talks about the net leverage ...
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0answers
60 views

Credit default swap replication by corporative bonds

I want to get literature or information related with the topic of CDS replication for those counterparties that do not hold. But that have traded bonds (with different degree of liquidity). What could ...
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0answers
36 views

estimate cost of equity (Re) / required rate of return using DCF [closed]

I'd like to estimate Amazon's after-tax cost of equity (Re) using both the DCF and CAPM approaches. Tons of info and resources on how to estimate Re using CAPM, but DCF, I see no relevant resources. ...
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0answers
51 views

Is it Possible to replicate SPAN?

I currently trade intraday Options on the nearest term expiry and futures. Both E-mini S&P. I am trying to replicate the SPAN margin calculation for the entire portfolio of options and futures. So ...
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1answer
60 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
236 views

Some definitions in the BARRA Predicted Beta model

I'm studying the BARRA Predicted Beta model, and the common factor covariance between portfolio $p$ and the return on the market $m$ is defined as the product of the transposed vector of the factor ...
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0answers
43 views

Valueing a Short future contract with dividens [closed]

A forward of an underlying paying a yield $q$ can be priced with the equation: Price $= S_0 e^{(r-q)*t}$ or Price $= (S_0-I)e^{rt}$ Where $S_0$ = Spot price, r = interest, q = dividend yield, I = ...
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0answers
34 views

Is there a quantitative definition of a Quiet, Moderate or Accelerate market conditions?

i know the StdDev price technical indicator which is the standard deviation but this one has an absolute value. The market conditions are: Quiet: lower oscillation of price around a constant ...
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0answers
27 views

Monthly Discount Rate in NPV Calculation [closed]

I have been offered 2 payment methods as I was buying some tools for a company I work for. I need your help to assess the best method. Here it goes, Total cost is $100 and I don't want to pay it all ...
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0answers
48 views

Arbitrage argument and Market Quotes [closed]

Good day, I wanted to ask for help with a question from one of my exercise sheets. For a share S the market quotes a given strike K in both european and american styles. Use an arbitrage ...