Questions tagged [finance]

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236 views

A definition of quantitative finance [closed]

I would ask a sort of "philosophical" question. Is there any author who gave a scientific definition of this subject? Is it considered a branch of mathematics or does it primarily concern economics? ...
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2answers
5k views

What are the properties of Max and Min functions?

I am having trouble understanding the transition from the third line to the fourth line. I see how it works through cases, but is there a general property that allows this?
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1answer
64 views

Why is the discount function non increasing if pure cash holdings are feasible?

I am struggeling with the question, for example lets take a swap with rate of 3.2 for one year and 3.6 for 2 years and Discount Factor 0.96899 for the first year and 0.93158 for the second year. ...
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1answer
3k views

How to apply Ljung Box Test?

I am checking the closing prices(about 9000+ prices) of the stocks data to test for randomness. The test I am using is Ljung Box test, in MFE toolbox for MATLAB, I used 300 data of closing prices, ...
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1answer
50 views

Accounting profitability [closed]

Can anyone please help me how to solve this problem? Grocery Freshly want to open a new store. They expect an initial cost of 30,000 to buy the property in which the store will be. After ...
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1answer
66 views

Adjusting your delta hedge when the stock crashes and were originally delta hedged

You are long a call option on a stock and you are delta hedged. The stock crashes in price. How do you adjust your delta, do you buy or sell stock? Could answers please be quantitative (i am getting ...
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1answer
86 views

Justify a backward differential equation

Regards of 4.5.1, how we get 4.5.5?
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2answers
91 views

Instantaneous change in value of portfolio

I am trying to figure out an intuitive explanation for the instantaneous change for the value of a portfolio (essentially I'm creating a self-financing portfolio to replicate a derivative payoff). ...
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1answer
52 views

0.0006 r-squared after trying to test whether the intercepts differ significantly. Did I do it wrong?

I am trying to test if the intercepts of two linear regression (CAPM) differ significantly or not. I have 2 fund's monthly return in the same period and regress them on the same market variable (MKT = ...
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1answer
74 views

How does buying a CDX and then taking a short CDS position generates alpha? [closed]

Can someone please explain to me how buying a CDX and then taking a short CDS position generates alpha? I am so confused.
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1answer
125 views

Reducing pricing errors (Alpha) in the CAPM with Bitcoin

I have been trying to examine, using the CAPM, if Bitcoin belongs in the market portfolio or not. With 10 industry portfolios from http://mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library....
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1answer
47 views

Equal Weight better sharpe than Tangency portfolio

Could you explain to me what it means to have better Sharpe Ratio in Equal Weight portfolio than tangency portfolio (max sharpe). Thank you.
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1answer
35 views

How to measure the impact of regulation on fund fees?

I want to measure the impact of mandatory disclosure on inducements on fees. I thought about doing a difference-in-differences analysis around the date of the new regulation with mutual funds as the ...
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1answer
105 views

Questions related to Sharpe's return-based style analysis

I have been reading about Sharpe's return-based style analysis, which tries to determine the manager's exposure/effective asset mix to changes in the values of the asset classes. It does so by using ...
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3answers
2k views

How to convert weekly data to monthly in r (or in Julia)

I have weekly series on financial risk index data as follows: DATE NFCIRISK 1/8/1971 0.58 1/15/1971 0.61 ......through 10/6/2017 -0.88 10/13/2017 -0.89 10/20/2017 -0.89 ...
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1answer
203 views

What causes discontinuities with stock prices

With reference to the figure above, why is it that the price at which the stock closed at on monday not equal to the open price on tuesday? Is this discontinuity due to an adjustment in the price to ...
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1answer
45 views

Binomial Model, Number of nodes from $t = 0$ to $t = n$

How many paths are there in a binomial model from time $t = 0$ to time $t = n$? How many nodes (states) are there? Intutively it seems that there are $2^n$ paths and $2n - 1$ nodes. But I am not sure ...
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3answers
393 views

Best known performance of stock prediction algorithms

I asked this question here and was directed to answer it on this stack exchange. My question is very simple. What is the best [known] performance of a stock prediction algorithm? I've seen papers ...
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1answer
94 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
649 views

how negative rates (mr and rf) affect CAPM

I don't understand how the negative rates factor into this and what it means in the market ...
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2answers
294 views

Linear combination of geometric Brownian motion

Let $X_t= e^{\left(\mu-\sigma^2/2 \right)t+\sigma W_t}$ be a geometric Brownian motion with drift $\mu$ and volatility $\sigma$. I am trying to find an analytical solution to $$\mathbb{E}\left[ \max(...
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2answers
217 views

Using IRR to calculate future value of cashflow

Discounting a cashflow using given forward rates will result in the following present value: PV = 102.875 = ${5\over (1+3\%)}$ + ${5\over (1+3\%)(1+4\%)}$ + ${105\over (1+3\%)(1+4\%)(1+5\%)}$ where ...
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1answer
366 views

How to use WACC for investment?

How to use a value of WACC? I have calculated WACC of company to be 7%. What if company had smaller or bigger WACC? Which one would attract investment?
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1answer
47 views

Understanding Fama Macbeth Regressions of Returns

I'm trying to understand what the Fama-Macbeth regressions of returns actually mean. The source of confusion is a 2013 Novy-Marx paper, in which he states the following: "The first specification of ...
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1answer
50 views

What is the difference between volatility and dispersion in finance?

I am confuse whether the volatility and dispersion is same or not because are use to measure the risk associated with asset. Even if they are different than what is the relationship between, if exist.
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1answer
79 views

Some interpretation on some plots / statistics

I have been playing with a model just for learning purposes (I don't expect to make any money from the model) but I wanted to get some opinions on what you think are "good" values and some opinions on ...
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1answer
37 views

How to calculate a weighted payback rate and period?

I have a client who borrows and repays money at different times. Assume the following example What is the correct way to calculate the repayment rate and more importantly, the time until repayment (i....
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2answers
119 views

Why is Delta Hedging a Hedge Against Short Position? [closed]

Consider the usual one-period binomial model. The delta-hedging formula, following Shreve's convention, is: $$\Delta_0=\frac{V_1(H)-V_1(T)}{S_1(H)-S_1(T)}$$ Shreve states: "The agent has ...
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2answers
127 views

Find arbitrage opportunity in the given market model

Consider the following 3-period-market-model: The discounted price of the risky asset $S$: How can I find an arbitrage opportunity in this model? I know that there would be no arbitrage if we ...
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1answer
183 views

Correlated stock prices and geometric Brownian motion

I have two uncorrelated stocks which follow geometric Brownian motion, as follows $$\begin{aligned} dS_a &= \mu_aS_adt + \sigma_aS_adW\\ dS_b &= \mu_bS_bdt + \sigma_bS_b dW \end{aligned}$$ ...
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2answers
720 views

Relationship between CML and SML

I am referring to the book Sharpe et al. (1998), Investments, 6th Edition. I am trying to wrap my head around some lines from the book, pertaining to Security Market Line. It reads: Earlier it was ...
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1answer
58 views

What preprint repositories are available online?

Besides data sources, what preprint archives are available for academics and practitioners in the fields of Quantitative Finance and Economics? I have subscribed Google Scholar alerts and regularly ...
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1answer
239 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
2k 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
113 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
73 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
104 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
243 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
239 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
126 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
946 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
216 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
718 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
125 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
126 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
1k 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
269 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
226 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
542 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 ...