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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58 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
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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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37 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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374 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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16 views

Help on Fama Mac-Beth regression

I am trying to replicate a research paper where they use the two step Fama-Macbeth procedure in order to estimate whether there are common factors on future returns. For this case I am using the CAPM ...
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1answer
79 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
71 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
44 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
119 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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36 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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17 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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30 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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131 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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66 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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33 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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70 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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38 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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63 views

Why we need to divide by 1 million when calculating market capitalization for data from Compustat?

Retrieving the data from Compustat Global, I have the number of stocks in Brazil is 1,000,000 times that collected from Datastream. For example, a company named "Telecomunicacoes Brasileiras Sa &...
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1answer
54 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
55 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
101 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
34 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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42 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
239 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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27 views

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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224 views

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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44 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
41 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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2answers
30 views

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
74 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
146 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
86 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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57 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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35 views

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
56 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
48 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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29 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
162 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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26 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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66 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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0answers
22 views

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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0answers
24 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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89 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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13 views

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
207 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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