Questions tagged [finance]

Finance describes the management, creation, and study of money, banking, credit, investments, assets and liabilities as well as the systems to handle these instruments.

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8 views

Converting Euro returns into USD terms

I have a series of log returns calculated on an index that is priced in Euro terms, and I'd like to convert those returns into USD terms. Would it be mathematically correct to calculate log returns on ...
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Pricing of forwards contracts

Of the courses I am taking in college this semester, two are Financial Mathematics and Derivatives. In each course, we learn different formulas to calculate the forward price of a forward contract. ...
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Cox-Ross-Rubinstein Model Closed Formula for Call Option

I am I quite new to the topic and at the moment I am self studying the CRR model. My notations are: $N$ number of periods, $\delta T$ length of one period, $S_0$ stock price at time $t=0$, $f_0$ ...
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Issue costs in adjusted present value [closed]

In an example from "Valuing levered projects" in my book (to illustrate calculation of APV), one of the elements included in the calculation of adjusted present value is "issue costs&...
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Yield-to-maturity (YTM) vs effective annual rate (EAR)

If the yield-to-maturity (YTM) on a bond is 5%, is the effective annual rate (EAR) on the cash flows associated with the bond also 5%? I know that YTM does account for the present value of a bond's ...
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Why does amortizing a balloon payment over the term yield a monthly payment increase % greater than the balloon % being on the backend? [closed]

This is really not making sense to me on a conceptual level, but after testing, appears to be the case. We are borrowing money at 3.00% to fund the leasing of some equipment to a customer. Lease Term: ...
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42 views

Rewriting WACC Formula

$WACC = \frac{E}{V} * R_e + \frac{D}{V} *R_D(1-T_c) $ where $R_D$ should be the cost of the debt. $T_c$ is the tax rate. When googling the formula for cost of debt I find $Cost of debt = R_D = ...
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2answers
37 views

Is there ever a case where there are multiple ticks (different prices) at the same tick timestamp in Forex?

Say I'm receiving ticks for AUDUSD. The timestamp for Forex tick data seems to go down to a resolution of .001 second (milliseconds). Example: ...
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UK Government Debt Statistics

I would like to find some stats regarding UK Government debt. Any leads ? I am looking for following questions Debt / GBP ? ( Got it already ) Debt profile ( by maturity, instrument) New debt ...
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1answer
45 views

Why does holding a linker give you positive carry when inflation indices move up?

My book says: "By construction, the cash flows of inflation linked bonds are indexed, using daily indexation factors that are applied to the real price of a bond to arrive to the dirty price of ...
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2answers
112 views

Storing options EOD time series in Flat Files

I have purchased data for EOD settlements of options prices for USA futures for personal use. I will not need multiple user access or real time access. I am not an expert programmer but use C# and R ...
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1answer
32 views

Valuation of the minimum guaranteed return that (some) pension funds provide - how would you do it?

Let's say a pension fund guarantees an annual return of at least 5% to their customers/investors, such that the investors face a payoff like the one of a call option (no downside). For this guarantee ...
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1answer
75 views

Calculation of Market portfolio from efficient frontier

I have a specific Portfolio frontier. Can someone provides me with details about how can I calculate the market portfolio from the efficient frontier? I know that I have to draw the tangent line from ...
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53 views

Exercise on Delta-Neutal-Hedging

Suppose you have three positions in the following assets in euros: long on 10.000 calls (maturity T = 3 months, strike= 0.55, Delta (1 call) =0.533), short on 210000 calls (maturity T = 3 months, ...
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Kalman Filtering theory and application in Finance models under asymmetric or incomplete information

Why do we need Kalman Filtering theory in dynamic models in finance when we consider an environment of asymmetric or incomplete information? I understand that this has to do with the update of the ...
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1answer
55 views

What does XIRR show?

I've put aside 1000 EUR for trading strategy test. Made number of trades where each position was worth 5 EUR. At any moment there was invested from 0 to 80 EUR. Entered all cashflows to XIRR function ...
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1answer
44 views

Confusion about candlesticks colors [closed]

Why is the second green candle stick green? Given that its closing price is less than the previous candlestick's closing price, shouldn't it be orange? Source: coninbase 1m chart for ethereum: https://...
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28 views

What is the name of leverage contracts where the worst case payoff is zero?

In a typical leverage futures contract the value of a position can be negative. That is to say, if you go long \$100 with 10x leverage at a price of \$50 and you then sell at \$40, the value of the ...
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4answers
65 views

corporate bonds - general questions [closed]

Newbie here and not trading IRL but for a school assignment. I want to buy corporate bonds because they are a safe bet from what I read. I have a few questions though, I hope I will find an answer ...
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24 views

Latest and currently utilized research on modeling option pricing with IV smile

As per title, where would I find the latest research papers on modeling option pricing, accounting for IV smile? I'm specifically interested in papers that already found practical application in some ...
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2answers
150 views

Starting Point for understanding Financial Theory for a Statistician

I am a Master’s student in Statistics who is interested in the field of Financial Modelling. I have very little experience or knowledge of Finance and have mostly worked on introductory projects in ...
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25 views

What is the shadow cost of capital for a bank?

With regard to banks RWAs (risk weighted assets), what does it mean a trade leads to a positive shadow cost of capital?
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55 views

How do you calculate mergers and acquisitions firepower?

I think the title is pretty self explanatory but I would really appreciate an answer. I am not sure if I am in the right place nor am I certain I use the tags necessary for the right traction. So any ...
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Performance Attribution - changing weights

I would appreciate it if someone could help me tackle this problem. I have daily data of returns for my portfolio, daily weights accounting for various portfolio changes. Could someone explain how I ...
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21 views

How can I calculate Total number of outstanding shares from a SEC 10Q report

I'm trying to calculate the total number of outstanding shares from a 10Q SEC repot. I dont see a field for that in the balance sheet. I noticed that there is As of November 12, 2020, 7,906,250 ...
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82 views

Interpretation of Value at Risk

Let $X$ be a Loss random variable (Positive values of X represents Losses) and let $p \in (0,1)$. I know that the Value at Risk at level $p$ of $X$ is defined as: $$VaR_p(X) = inf{\{x \in \mathbb{R} : ...
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How to find State price vector given inflation rate, bond price, states of nature, and dividend

Suppose you have the following information on prices of some assets. The inflation rate is 2%. The one period zero-coupon bond with a face value of 100 is sold at a price of 96. There are two states ...
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1answer
205 views

Why a probability distribution can be viewed as a price?

in this paper : at page 111, left part, we pass from the distribution p to price p. But I don't see why it's the case. I've searched, and it seems like we can see the LMSR as a n Arrow-Debreu ...
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72 views

Portfolio Risk Contribution

I came across a paper that shows calculations for two types of portfolio risk contribution. The first shows "Asset risk contributions" and the second shows "Correlation-weighted asset ...
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4answers
361 views

MATLAB or Python as starting language? [closed]

I have a fairly rigorous background in mathematics (last year of my undergrad in Pure Maths), and I have been exploring the world of Quantitative Finance as I explore what I might be able to do with ...
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1answer
92 views

Calibration Hull-White

This is more a conceptual question around calibration. My objective is to calibrate a 1-factor Hull White model, and my question relates to calibrating a and sigma (both constants) to swaptions. Let's ...
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43 views

Calculate VaR using method of historical simulation

A bank invests € $1.000.000$ in a hedge fund. The last 500 daily returns can be taken from a database. The worst 20 returns are -4.58 -2.95 -2.95 -2.93 -2.17 -2.08 -2.06 -1.98 -1.94 -...
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1answer
60 views

Do I break any law/agreement by answering/asking question on how vendors (Murex,Sophis,etc) do pricing? [closed]

I doubt it is legal, as I never saw any open access information about any vendor. But, maybe somebody can pinpoint me to some clear answer. Thanks!
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37 views

Chinese Stock Exchange Indexes data and descriptive statistics

I am trying to reproduce the following paper: https://link.springer.com/chapter/10.1007%2F11600930_48 In this study, daily prices from January 4, 2001 to December 31, 2004 for Shanghai Stock ...
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49 views

Derivative Pricing of an Asset

The Stochastic Differential Equation that models the change in an asset price is $$ dS = (12S-sin(S))dt+\frac{\sigma S}{S^2+1}dX $$ where dX's are random variables drawn from standard normal ...
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2answers
194 views

Reinforcement learning in finance

In brief, what are some mainstream and recent applications of reinforcement learning in finance that fall outside of the usual scope of agent-based modeling?
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56 views

Please help me understand this dataset regarding stock prices

I am supposed to predict column E but I cannot figure out what any of these columns mean. The information provided with the dataset is as follows: column A: past 28 week slope value column B: past 48 ...
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45 views

Should the sharpe ratio always change with number of assets?

I am trying to understand if the Sharpe ratio of a portfolio change if we increase or decrease the number of assets in the portfolio. It would be helpful if you could provide an explanation with ...
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1answer
75 views

Should I calculate a spread using stock prices or the ratio?

So I am creating a trading algorithm thats uses cointegration, for a pairs trading strategy. Imagine there is stock A for 100 dollars and stock B for 25 dollars. My questions is when caulcating the ...
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20 views

Is there any relationship between General Electric's after-tax charge and their reserve deficit?

I posted a question last year trying to understand what a "Charge" is: What exactly does after tax "charge" mean? But I came back to this GE story and realized I still don't quite ...
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1answer
35 views

I’m trying to construct a binomial model that uses 2 risky model - number of steps varied

So with this question I am unsure how to even do a binomial model with 2 risky assets never mind having n-steps. All the examples I’ve found are either not containing any risky assets or only have one....
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53 views

How can you interpret one of the parameters of optimal consumption at the Merton portfolio problem?

Statement: Let the dynamics of wealth of the agent satisfy $$dX_{t} = \pi_tX_t\Big(\mu dt+\sigma dB_{t}\Big)- c_t X_t dt, \qquad \textrm{with}\quad X_0=x_0 \in \mathbb{R},$$ where $(\pi,c)$ is an ...
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41 views

Swap curve is unsmooth at front end with naive interpolation

I am looking at swap curve building at front end and find it difficult to get a smooth forward curve with a fast generic algorithm. For example, EUR 6m curve has 6m deposit, and then a series of FRAs (...
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38 views

Quantlib Yield Curve given spot and forward rate

Is it possible to create a yield curve, given the spot rate and the forward rate?
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1answer
155 views

Inverse Covariance Matrix Transformation from CAPM

Beginning with the CAPM model we have (with a risk free rate of 0%): $r_i=\beta_i (r_m)+\varepsilon_i$ with $\varepsilon_i$ the diversifiable risks per assets The variance matrix: $\Omega = \beta'\...
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0answers
32 views

Portfolio Weight Constraints

Hi, So I was asked to calculate the maximum sharpe ratio using solver in excel but it gave me really big numbers for the portfolio weights. So I was wondering what is a good constraint to add and why ...
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2answers
60 views

EONIA 3 MONTHS or LIBOR 3 MONTHS

due to a calculation I have to make I need the OIS 3 MONTHS for the ECB. I tried searching for data for 3 months EONIA but I could not find anything. Can someone help me with this? if not can I use ...
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60 views

Option percentage quotation for structured products

I am having some trouble to understand how option premium can be a percentage for structured products. For example, in an Equity Linked Note, let's say the bond part cost 80% of notional we have 20% ...
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2answers
106 views

Why different compounding in interest rates

This is more a philosophicalquestion than a financial question, let me explain. There exist different types of interest rate (Annual Interest rate, Semi-annual interest rate, monthly interest rate, ...
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1answer
74 views

What are good machine learning projects for a senior student? [closed]

I'm a senior year student, I study software engineering, I recently started with a machine learning tutorial, I want a machine learning projects that are not hard to make and at the same time good for ...

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