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.

Filter by
Sorted by
Tagged with
1 vote
0 answers
56 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 ...
0 votes
1 answer
58 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\...
0 votes
0 answers
83 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 ...
0 votes
1 answer
67 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 ...
2 votes
0 answers
68 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 ...
0 votes
1 answer
49 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 ...
  • 101
0 votes
1 answer
37 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 ...
  • 3
2 votes
0 answers
53 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, ...
-2 votes
1 answer
119 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 ...
0 votes
0 answers
89 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?
  • 101
0 votes
1 answer
93 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"?...
  • 101
0 votes
1 answer
1k 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%-...
  • 101
2 votes
1 answer
444 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
  • 111
0 votes
1 answer
125 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-...
0 votes
1 answer
119 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 ...
1 vote
1 answer
155 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 ...
4 votes
1 answer
181 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 ...
  • 41
0 votes
0 answers
209 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 ...
0 votes
0 answers
131 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 ...
1 vote
0 answers
43 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. ...
1 vote
2 answers
461 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 ...
0 votes
0 answers
288 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 ...
  • 21
1 vote
0 answers
116 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 \\ ...
  • 423
1 vote
1 answer
121 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?
0 votes
1 answer
116 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-...
  • 341
0 votes
3 answers
174 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 ...
0 votes
0 answers
43 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 ...
0 votes
1 answer
47 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.
0 votes
0 answers
84 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 ...
  • 101
1 vote
1 answer
331 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. ...
user avatar
3 votes
0 answers
78 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 $t=0$, $f_0$ ...
  • 471
0 votes
0 answers
2k 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 ...
0 votes
0 answers
52 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 = ...
  • 121
0 votes
2 answers
66 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: ...
0 votes
2 answers
33 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 ...
0 votes
1 answer
214 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 ...
  • 1
1 vote
2 answers
374 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 ...
1 vote
1 answer
39 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 ...
1 vote
1 answer
363 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 ...
  • 113
1 vote
0 answers
67 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 ...
0 votes
3 answers
152 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 ...
  • 103
-1 votes
1 answer
59 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://...
  • 111
1 vote
4 answers
76 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 ...
2 votes
0 answers
29 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 ...
  • 31
1 vote
2 answers
269 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 ...
0 votes
0 answers
650 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 ...
0 votes
0 answers
43 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 ...
1 vote
0 answers
104 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} : ...
2 votes
1 answer
228 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 ...
1 vote
0 answers
141 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 ...

1 2
3
4 5
14