Questions tagged [financial-engineering]
The financial-engineering tag has no usage guidance.
70
questions
4
votes
1answer
210 views
What is “signal” in quant investing?
Can somebody explain (and give examples) of "signals" in quant investing? What are those? What does this word mean?
-2
votes
0answers
94 views
Would betting on network node traffic or behaviour be considered illegal in the US?
While taking this intro Coursera class https://www.coursera.org/learn/financial-markets-global. There was a student which asked the professor if anyone can start an exchange and whether it would be ...
0
votes
0answers
34 views
Hedging costs and BS-price
I'm looking at the chapter, "The Greek Letters" in Hull's book (Options and derivatives...) and in particular the paragraph "Dynamic Aspects of Delta Hedging". He demonstrates two ...
0
votes
1answer
27 views
How to calculate basis swap fair spread Using Quantlib 'floatfloatswap'?
I am trying to calculate a single currency basis swap by using the Quantlib floatfloatswap function.
Please advice if I am doing wrongly.
...
3
votes
5answers
526 views
bank issuing structured products
"The investment banks supplying structured products were effectively buying options from investors"
How to understand this quote from this source?
I would think the investors are usually had (long) ...
0
votes
1answer
72 views
What is the R code for estimating copula parameters of BB1 with dim=2? And what's the code for gof test of BB1?
Kindly assist with R code for BB1 copula. Text books and research articles provide codes for clayton, gumbel, frank, normal and t copulas. However, I can't find code for BB1.
For example, this is ...
0
votes
1answer
82 views
What model to price interest rate option if we have views on trend of forward interest rate?
Apart from classical Black-Scholes model which assumes that forward interest rate is (log) normally distributed, what kind of pricing tools can we use as a buy side? We have good estimation on how ...
0
votes
1answer
1k views
Forward Contract Price on Zero Coupon Bond
I'm trying to calculate the forward contract on a zero coupon bond where the forward contract matures at t=4.
The zero coupon bond matures at t=10 and has a face value of 100. The price of that bond ...
1
vote
0answers
36 views
Information asymmetry models
I am searching for some textbook in financial mathematics that presents information asymmetry models (maybe more advanced models), so as to make some practice. Does anbody know such a book?
1
vote
0answers
33 views
Asset prices Boom,Bust and Recovery cycles
Is there any systematic way to detect the Boom, bust and Recovery cycles in Asset Prices ?
Are there any good references about the Topic ?
Thanks in advance.
3
votes
1answer
93 views
Exposure/Factor Analysis on a loan portfolio?
I am working on performing factor analysis on a loan portfolio. This is my understanding so far, and I was hoping that some of the smart folks here might be able to chime and guide me through this ...
3
votes
3answers
178 views
Can an individual hedge inflation that exceeds CPI-U?
Is there a way for an individual (i.e., excluding institutional tools and using only consumer products) in the U.S. to hedge inflation over the long term greater than that measured by CPI-U? ...
1
vote
0answers
166 views
Credit default swap replication by corporative bonds
I want to get literature or information related with the topic of CDS replication for those counterparties that do not hold. But that have traded bonds (with different degree of liquidity). What could ...
3
votes
0answers
121 views
Pre-requisites for Finance Mathematics
I would like to pursue research in the areas of Financial Mathematics. Hoping to look into Operations Research, Risk Management and Stochastic Modeling. Anyone got some suggestions on useful resources ...
1
vote
2answers
123 views
Paper recommendation with examples
Could you please advise me some papers/working documents with applications mainly focused on Fixed Income/Financial Engineering (Numerical Methods) as the one in the link below? Preferably on Matlab, ...
3
votes
1answer
198 views
To what extent are Lévy processes used in financial engineering?
I know that (time changed) Lévy processes are actively researched in the academic world, including tools such as minimal entropy martingale pricing measures and fast Fourier transforms.
To what extent ...
3
votes
1answer
408 views
condition of risk neutral pricing
The theorem says if $U$ is a numeraire and let $\mathbb{Q}^U$ be the corresponding measure. Then for every tradable asset $S$, the relative price $S_t/U_t$ is a martingale under $\mathbb{Q}^U$. But I ...
1
vote
1answer
2k views
continuously compound forward rate formula
I want to derive the continuously compound forward rate formula according to FRA.
fixed rate is $K$ and notional is $N$, $\delta=T_1-T_0$.
$t<T_0<T_1$, the FRA holder at time $T_1$ need to pay ...
2
votes
2answers
170 views
Utility functions, are they used in the real world by hedge funds, banks, etc?
I am starting to study mathematical finance. When I studied microeconomics and macroeconomics I studied utility functions, but I never saw how they are in the real world. I do not see how they can be ...
1
vote
0answers
59 views
Pricing methods in the real world when there is more than one free arbitrage price
Perhaps this question sounds trivial and obvious, but I am starting to study this new field. When we are in a complete market without arbitrage opportunities there is only one risk-neutral martingale ...
0
votes
1answer
111 views
How to Calculate Stock Return with Stock Bonuses and Rights?
I would appreciate if you could let me know how to calculate stock return for a given company when the company issued bonus shares and rights.
If company just paid dividends, stock return would be:
...
4
votes
4answers
651 views
Determine the right order size with market making strategy
In a market market strategy https://web.stanford.edu/class/msande448/2017/Final/Reports/gr4.pdf, how can we determine the right order size? Assuming I use a market making strategy and on a specific ...
1
vote
1answer
302 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?
1
vote
0answers
136 views
European Call Option Modelling under 2 factor Hull White interest rates
I have modelled the yield curve through the two factor Hull White Model. Now I want to implement in Matlab the price development of a ATM-Call-Option (European).
Has someone an idea how to combine ...
2
votes
2answers
7k views
Funded equity collars and margin loans
There is an article in the Financial Times today concerning equity funded collars [1]. The equity collar structure is used by a counterparty $A$ which wants to build up a position in a stock $S_t$. ...
-3
votes
1answer
192 views
What is martingle measure with risk free asset in numeraire or stock price in numeraire [closed]
What is martingle measure with risk free asset in numeraire or stock price in numeraire
1
vote
1answer
242 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(...
2
votes
1answer
991 views
CAPM and factor modeling: Machine learning
Excuse my ignorance with this I am still trying to wrap my head around the interpretation of the Fama French 1992 factor paper.
I come from a computer science background but I am interested in ...
1
vote
1answer
214 views
eurodollar future
I just found out about eurdollar futures and I am confused.
A eurodollar future contract is defined as a cash settled future based on a Eurodollar Time Deposit having a principal value of USD $1,000,...
0
votes
0answers
68 views
Is there a mathematical way of showing the slowing down of economic markets?
I'm currently taking a introductory mathematical finance course in university and recently on the news (BBC, etc), it states that the economic markets are shown to be slowing down for the next few ...
2
votes
0answers
562 views
stochastic modeling and machine learning [closed]
For a little bit of background, I've been studying stochastic calc and a few of it's applications (currently I'm still at the early stages of learning applications) and have been curious as to whether ...
-4
votes
1answer
322 views
python: How use the S&P 500 index to predict japan stock,namely timezone issue
I want to use American stock index, such as S&P 500 index(open, close...) to predict japan stock daily close price or other with machine learning. I found that there is timezone between japan and ...
1
vote
0answers
99 views
Can someone suggest some good reads on OAS and Spread Duration?
I have been through the CITI Yield book paper and the OAS by Barclays. Is there is anything else that tackles this topic?
Any help would be much appreciated.
Cheers!
1
vote
0answers
166 views
Why is shorting (oil) futures a bit of a negative gamma trade?
From this article, http://www.zerohedge.com/news/2017-01-22/oil-speculators-have-never-been-long,
"I get what you're saying about the price risk which is always the danger of shorting crude oil it's ...
0
votes
1answer
486 views
How to price a quanto basket option?
EDIT:
Maybe there is no way to get explicit solutions for basket options (maybe the Black-Scholes differential equation can't be solved directly ??).
Q3: How do you price and hedge ( S1(T) + S2(T) - ...
4
votes
1answer
575 views
Step by Step Guide to Learn Quantitative Finance [closed]
Can some one help in creating step by step guide to learn Quantitative Finance?
The suggestions should be in the lines of
1- Which Maths topics needs to be learn 1st
2- Which Maths Books or ...
0
votes
1answer
56 views
For discrete models, the existence of strong arbitrage is equivalent to a particular self-financing strategy
Background Information:
This question is from Lectures on Financial Mathematics: Discrete Asset Pricing.
Question:
Prove that for discrete models, the existence of a strong arbitrage is also ...
1
vote
1answer
124 views
All martingale measures price the attainable claim equally
Background Information:
This question is from Lectures on Financial Mathematics: Discrete Asset Pricing.
Theorem 3.2 First Fundamental Theorem of Asset Pricing - Suppose $\nu$ is any measure such that ...
2
votes
1answer
186 views
Where can I find ideas for strategies? [closed]
Every book I read refers me to many other books, there is practically no way I can read all this text in my life time. Once and for all, where is the best place to fish for ideas?
0
votes
1answer
160 views
Show that there exists a fully invested portfolio such that the covariance between their returns is zero
Background Information:
I came across this question in chapter 2 of Active portfolio Management by Grinold and Kahn. It pertains to the efficient frontier which is displayed below:
Question:
If $...
-3
votes
1answer
100 views
What is the value this “special” forward contract at maturity?
Background Information:
I am not sure this is relevant:
Terminal value pricing:
If the derivative $X$ equals $f(S_T)$, for some $f$ then in the value of the derivative at time $t$ is equal to $V_t(S_t,...
1
vote
1answer
134 views
Simple simulation model of bond plus cash returns
Is there a robust way to model 'bond plus cash' simulated returns, say in Excel, for an asset allocation problem between stocks vs bond plus cash?
For equity, ...
0
votes
1answer
72 views
If there is an inconsistent pricing strategy then by defintion we have strong arbitrage
Background Information:
An Inconsistent pricing strategy is a self financing strategy $\phi$ with $V_T(\phi)= 0$ and $V_0(\phi) \neq 0$
A strong arbitrage is a self-financing strategy $\phi$ with $...
4
votes
1answer
365 views
How to prove we have a $\mathbb{Q}$-Brownian motion?
Background Information:
This question comes from the book Financial Calculus by Baxter and Rennie. WE start with looking at the marginal of $W_T$ under $\mathbb{Q}$. We need to find the likelihood ...
0
votes
1answer
89 views
Do we have a Brownian motion
Background Information:
The process $W = (W_t:t\geq 0)$ is a $\mathbb{P}$-Brownian motion if and only if
i) $W_t$ is continuous, and $W_0 = 0$
ii) the value of $W_t$ is distributed, under $\mathbb{...
0
votes
1answer
294 views
Showing the discounted stock is a martingale
Background Information:
This question follows from here
It is tempting to write $$V_0(X) = \beta\left[\left(\frac{\beta^{-1}S_0 - S_1(d)}{S_1(u) - S_1(d)}\right)X(u) + \left(\frac{S_1(u) - \beta^{-1}...
2
votes
1answer
177 views
Law of One price and the Inconcistent pricing strategy
Background Information:
A market satisfies the Law of One Price if every two self-financing strategies that replicate the same claim have the same initial value.
An inconsistent pricing strategy is ...
1
vote
1answer
127 views
Formula for conditional expectation. Related to the Fundamental Theorems of Asset Pricing
Let $\lambda$ be a probability measure on $\Omega$ (finite), with filtration $\{\mathcal{F}_t\}$. Define $\nu(X) = \lambda\left(X\frac{d\nu}{d\lambda}\right)$, where $\frac{d\nu}{d\lambda}$ is a ...
0
votes
1answer
49 views
Verifying value of claim as an expectation
Background:
We have so far taken the bond B to be deterministic for simplicity, but some reflection shows that this is not in any way necessary. Everything works out the same way with a stochastic ...
3
votes
3answers
297 views
How to understand nonrandom/random process in Shreve book? [closed]
I have been reading Chapter 4 of Shreve's Stochastic Calculus for Finance II.
It is easy to understand the simple process, $\Delta(t)$, defined on Page 126, which is just a constant inside a given ...
