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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66 views

General question regarding delta heding

I was wondering if I have to take the strike prices of options into consideration when doing a gamma and delta hedging. As an example, let's suppose that I have 2 positions: a long position call ...
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48 views

Liquidity risk in Python / R? [closed]

Does someone know a book or site that contains Python or R code for implementation in liquidity risk?
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1answer
107 views

Fat tailed can be estimated through a t-distributions?

I have a simple question that makes me doubt a bit. In a multiple choise exam I ecountered this question: "if the stocks returns are not normally distributed, the fat tail effect can be estimated ...
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2answers
667 views

Where can I find detailed information of famous quant companies such as Renaissance Technologies?

I am doing a report about famous quant companies such as Renaissance Technologies. Where can I find information such as ranking of these companies and their fund's rate of return.
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Quantitative interview questions - fixed income [duplicate]

I will pass a quant interview (fixed income). The interviewer said the questions do not have a right answer, they are not math exercises. He said the questions are like their job,the objective is to ...
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26 views

Corporate finance equity valuation question (First year question)

Hi, This is a question from a first year finance course and I'm having trouble come up with the answer. I get so close but just not there. I unfortunately don't have the answers with me but if anyone ...
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25 views

Finding historical data

I need T-bill rates in order to use it as risk-free asset from Jan,2003 t0 today.(monthly data) I don't know how to find it. Can you please suggest your idea about how to find it?
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1answer
47 views

Sharpe Ratio of a Long-Short Portfolio

I have a portfolio High and Low (according to the highest profit). From this I have formed my long short portfolio and calculated my Sharpe Ratio. How to interpret this correctly? Does a positive ...
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1answer
57 views

Is Fungibility Dynamic or Static

I'm trying to work out if fungibility of financial assets / instruments is dynamic (i.e. it can be applied to a subset of the asset or instrument's properties) or is it static (i.e. it can only be ...
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30 views

For investment analysis, is it helpful to draw charts of present value (PV) against rate (%)

Background I prepared a prototype getting cash flow as input and drawing as output some charts like present value (PV) against rate (%). The points with big radius on chart of NPV against rate are IRR ...
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44 views

Different methodologies of building indices

Say have a basket of coupon bonds $B_i$ with $i \in \{1, ..., n\}$. Those bonds have different characteristics one from another. For example they differ in maturity, face value and coupon outstanding. ...
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1answer
31 views

in time series analysis or finance people use log return for inference but returns can take negative value [closed]

in time series analysis or finance people use log return for inference but returns can take negative value. but log cant take negative values. so why we use it when log is not defined on most of ...
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1answer
45 views

How do we analyse the future and option market on the base of the Fama-French model?

How do we analyse the future and option market on the base of the Fama-French model? Basically i want to know can we analyse derivative market on base of FAMA French or CAPM model ? e.g for stock we ...
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33 views

Fama and French HML and SMB factors

I am investigating the Fama and French model using a Bayesian selection procedure laid out by Barillas and Shanken (2018). When I plot the cumulative probabilities of each factor, I notice that for ...
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52 views

Why standard errors in macro-level variables are normally higher than that in firm-level variables?

From this dicussion, the commentor said Lastly, firm fixed effects may absorb more variation and likely reduced the size of their standard errors. In practice, I also mainly see that the standard ...
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1answer
47 views

Show that the following result holds true for the variance of the return of a portfolio of shares

Start with a portfolio $p$ of $n$ shares, each with weight $x_i = \dfrac{1}{n}$ (for $i$ ranging from $1$ to $n$, discretely). Its return is given by: $$R_p=x_1R_1+\ldots+x_nR_n=\sum_{i=1}^{n}=x_iR_i\...
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80 views

Completing the financial investment disclaimer platitude with statistics terminology

Take the typical disclaimer often seen where investment products can be found. Here is a sentence from the fine print of BlackRock's fundamental equity fund page: Performance data quoted represents ...
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1answer
61 views

Basic stock shorting question [closed]

So im just a little cloudy on how shorting a stock drops the share price. I understand that you borrow, or set aside shares from your brokerage to then buy later at the origional price. My guess was ...
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26 views

How to calculate NOPAT if the effective tax rate is 0 or negative

I am trying to calculate NOPAT for L S STARRETT CO. The effive tax rate I calculated for 2020 was -0.09% Operating Income was -5.3 mill. Using the NOPAT formula Operating Profit * (1 - tax rate) I got ...
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42 views

Backtesting of outperformance of a benchmark using the Deflated Sharpe Ratio

I want to test whether, let's say, strategy A outperforms strategy B. In Marcos López de Prado's book Advances in Financial Machine Learning he presents the following statistics: The Probalistic ...
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16 views

Capital Charge or Capital add on for Concentration risk using Model-free measure standardised HHI (Herfindahl Hirschman Index)

I am looking to calculate the Capital Charge or Capital Add on for Concentration risk using standardised approach using HHI Below is the HHI index calculation What is procedure to calculate the ...
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26 views

Theoretical reasons for the difference in share price when estimated with DCF-Analysis and DDM

I saw that when estimating the share price with DCF-Analysis (Discounted Cashflow Analysis) and with DDM (Dividend Discount Model) the estimated share price happens to be different sometimes when ...
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1answer
44 views

How does a company increase its free cash flow? [closed]

I am new to the finance space. I read the goal of a company (Philips) is to increase its free cash flow to above 2 billion euros by 2025. I understand that free cash flow is the amount of disposable ...
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1answer
24 views

Reason for difference in share price between DDM and ERM? [closed]

I've calculated the Share Price of a fictional company both using the Dividend Discount Model (DDM) and the Earnings Recapitaliazation Model (ERM). However, the share prices differ significantly ...
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41 views

Should we include the industry variables when we control for year*industry fixed effects?

In panel data, we control for firms and years fixed effects even we also have some time-variant firm-level regressors. I am wondering whether it also happens at the industry level. If it is the case, ...
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1answer
98 views

Why continuously compounded interest a standard in finance? [closed]

Why is the "continuously compounded interest" the standard in finance? Many finance textbooks use the formula e^rt without justification. The assumption that the interest frequency is ...
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67 views

Expected value of P&L based on option prices

How can we compute the expected value of P&L assuming the option price is given? Do we need to have more information to calculate P&L?
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1answer
34 views

How to understand “OAS assumes the recovery rate of the bond is 0” and “OAS” does not include credit risk?

My confusion is, the OAS comes from Z-spread with adjustment on option value. Does it mean the z-spread is assuming that the bond never defaults so that it does not include the "credit risk"?...
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1answer
84 views

How to convert CDX spread to price?

Example: assume the current HY CDX is with 5% coupon. The spread is around 300bps, with a duration of around 4 years. Would you pls help me to understand why we can proxy the HY CDX price as 100+4*(5%-...
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1answer
386 views

what does “p&l leak ” refer to in finance?

I have saw "p&l leak" in book/paper more than once, especially when talking about hedging, etc. what does "p&l leak" exactly refer to? Thanks
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1answer
84 views

ACT/360 and business day convention interest question

The question I've been stuck is: We have a deposit of 10 million on 2011-04-01 for 7 days at 4 percent, assume T+2 settlement, calculated with ACT/365 basis and following business day convention. (04-...
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1answer
76 views

Regression analysis in finance - book recommendation

Hey I am looking for a good book about regression analysis in finance (e.g. credit risk). Could you recommend something? It would be great if this book will be connected with some programmic language ...
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1answer
51 views

Martingale problem on biased random walk

I am struggling to understand the martingale property of exponential of a biased random walk. For example, in the following problem how do I verify whether the following is a martingale, submartingale ...
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1answer
131 views

forward variances under rough bergomi

I have seen in several papers on rough volatility using the following expression for the forward variances $$ d\xi_t(u) = \xi_t(u) \eta \sqrt{2H} (u-t)^{H-1/2}dW_t $$ Can anyone explain to me how this ...
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68 views

Different tickers with the same ISIN are the same - even if stock price is different?

I'm a little confused about this. Say there's a ticker I'm interested in called A ("Company Holding AG") @ \$1.2. I search for ...
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25 views

How do I calculate inflation adjusted CAGR?

I'm running backtests with monthly data going back to the 1920's and I'd like to compare different strategies using inflation adjusted CAGR. But I don't know how to calculate it. Would any of these ...
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0answers
31 views

Change weights of the portfolio [closed]

I have spent a lot of time finding some trading alphas. Now, I have about 10 alphas to trade Future, I also optimized the portfolio by using Markowitz's Modern Portfolio Theory (MPT) to get weights. ...
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2answers
144 views

Pricing binary options

A binary option pays an amount of money if an event takes place and zero otherwise. Binary options are usually used to insure portfolios against large drops in the stock market. On March 25, 2021 the ...
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116 views

Daily weights and returns of portfolio that rebalances monthly

I am to replicate the Betting against beta strategy by Pedersen and Frazzini. We use daily returns of the stocks and construct two portfolios based on their ranked betas. Weights is also based on the ...
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0answers
39 views

Milstein scheme for Heston model - rate of convergence

Heston model is described by following SDE \begin{equation} \begin{aligned} dS_t &= \mu S_t dt + \sqrt{\nu_t} S_t dW^S_t \\ d\nu_t &= \kappa(\theta - \nu_t) dt + \xi \sqrt{\nu_t} dW^{\nu}_t \\ ...
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77 views

Which interest rate model is the most popular

Hey on wikpedia (https://en.wikipedia.org/wiki/Short-rate_model) there are quite a few short rate models listed, but which models are the most commonly used now? Because such simple models as Vasicek ...
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44 views

How to backtest using portfolio compositions in python using backtrader

I have a csv file / pandas dataframe which looks like this. It contains various portfolio compositions for different strategies. Mostly based on different optimisation methods, max sharpe, min VaR etc....
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1answer
57 views

Where can I find the list of companies in US that have defaulted

I am trying to find a list of US companies that have defaulted in the recent past .Any link for this?
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1answer
61 views

What is the difference between a non-convertible and a non-deliverable currency?

it seems non convertible (eg CNY) or partially convertible (eg BRL) may be due to capital controls or a currency only used domestically. I was then wondering what is the difference between a non-...
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3answers
115 views

TIPS (Treasury Inflation Protection Security) Information

I've recently been learning about TIPS and their role as an inflation protection instrument. If you buy a TIP even when it has a negative real yield-to-maturity, is it still possible to have a ...
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17 views

Backtesting multiple portfolio optimisation and trading strategies using number of stocks to purchase as input

I want to backtest a trading strategy + portfolio optimization but I have never used a backtesting program before. I am comfortable with python I think. My outputs from my trading logic (after ...
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32 views

Euribor + margin

I have this bond assigment where I have to calculate the CF each quarter, given a constant EURIBOR3M rate of -0,539%. There is also a 1,6% margin per annum that I have to take into account. The ...
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1answer
38 views

current FRA quotation

where can I find the current FRA (Forwad Rate Agreement) quotes? I know this is an OTC contract, but I would like to see what the rates for such contracts look like at the moment.
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49 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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1answer
246 views

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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