Questions tagged [financial-engineering]
The financial-engineering tag has no usage guidance.
1
vote
1answer
107 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 ...
-4
votes
0answers
26 views
Granger causality, Impulse Response Function, Vasicek model, GMM [closed]
Hi. I want help with the following questions for my final exam. This is past exam questions. Thank you! I look forward to any kind help!
2
votes
1answer
86 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
21 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
62 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:
...
2
votes
4answers
216 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
85 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?
0
votes
0answers
36 views
Return / yield of an ATM-Call Option on a zero coupon bond
The zero-coupon bond with unit face value and maturity S for a call option with maturity T and strike K is given by:
The bond prices $P(t,T)$ and $P(t,S)$
$$\begin{aligned} ZBC(t,T,S,K) = & P(t,S) ...
1
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0answers
46 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 ...
1
vote
2answers
671 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$. ...
-4
votes
1answer
86 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
0
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0answers
57 views
Reverse convertible note
When a bank sells a reverse convertible note, what does the bank do in order to generate the pay-off at maturity? Does the bank sell or buy put options? Thanks in advance.
1
vote
1answer
218 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
471 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 ...
0
votes
0answers
40 views
Scenario Generation in GAMS
Suppose we have the dataset from https://finance.yahoo.com/quote/%5EIXIC/history?period1=1068652800&period2=1510502400&interval=1wk&filter=history&frequency=1wk which consists of ...
1
vote
1answer
138 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
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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
335 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
225 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 ...
0
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0answers
31 views
How does a liquidity guarantee for Asset-Backed commercial paper used to finance a Conduit work?
A liquidity guarantee was what a lot of banks used to insure outside investors payments if an asset in a Conduit defaulted. The way they were doing it was not really dispersing the risk evenly ...
1
vote
0answers
73 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
99 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
279 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) - ...
1
vote
1answer
328 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
48 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
88 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 ...
2
votes
1answer
147 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
132 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
94 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(...
1
vote
1answer
127 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
56 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 $...
3
votes
1answer
195 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
65 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
130 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
141 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
105 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
46 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
269 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 ...
2
votes
1answer
34 views
Compute the risk measured by the standard deviations $\sigma K_1, \sigma K_2, \sigma K_3$, does this have to do with weights?
Compute the risk measured by the standard deviations $\sigma K_1, \sigma K_2, \sigma K_3$ for each of the investment projects, where the returns $K_1, K_2$, and $K_3$ depend on the market scenario:
$$...
2
votes
1answer
282 views
Books on financial instruments?
Can you please tell me some good books to learn in detail about all financial instruments available in the market today ?
1
vote
0answers
87 views
Need help understanding basics of cash flow engineering
I'm studying Financial Engineering, a subject I'm completely new to.
I'm using Principles of Financial Engineering 3rd Edition and trying to solve the exercises ...
0
votes
1answer
105 views
What is some book that is complete and easy but hard enough to serve as prerequisite for asset pricing and portfolio choice theory?
What is some book that is complete and easy but hard enough to serve as prerequisite for asset pricing and portfolio choice theory by kerry back?
I wonder how come a beginning graduate textbook is so ...
2
votes
1answer
92 views
Why there are almost no book for revenue analytic?
Why there are almost no book for revenue analytic?
By revenue analytic, it is meant to be predicting the revenue of a firm in the future
1
vote
0answers
39 views
Annuities problem
First problem is like this:
loan amount: 20,000,000.00
First six months: There is no payment but there are interest (grace period)
Next six months: payment of 600,000.00
Since 13 month: payment of ...
1
vote
1answer
197 views
Financial Mathematics essay topic
I have a mathematics background and I am currently doing a Masters in Financial Mathematics. I am required to write an essay in a financial mathematics area but I have little knowledge about it since ...
1
vote
2answers
379 views
Feature Selection Effect on Deep Multi-Layer-Perceptron for Financial Applications
I am trying to build a machine learning system for financial price prediction.
I am using a 3 layer MLP (a deep network) with 3 outputs (buy,hold,sell).
I am using different features such as price ...
-1
votes
1answer
1k views
Difference between Total Long Term Debt and Net Total Long Term Debt
What is the difference between Total Long Term Debt and Net Total Long Term Debt?
Below you can see a picture revealing that they are not equal.
7
votes
1answer
471 views
Use of Girsanov's theorem in bond pricing
Assume that we want to calculate the time $t=0$ price of a bond:
$B(0,T) = E_P[\exp(-\int_0^T r_s ds)]$,
where $r$ is the interest rate following the SDE
$dr_t=k(\theta-r_t)dt+\sigma dB_t=b(r_t)dt+\...
5
votes
2answers
312 views
Itô diffusion processes in finance with unknown distribution at a terminal value
In several papers it is argued that for many Itô diffusion processes,
$$dX_t = a(t,X_t)dt+b(t,X_t)dB_t,$$
in mathematical finance the distribution of $X_T$ for fixed $T>0$ is unknown, which makes ...
13
votes
6answers
17k views
Why non-stationary data cannot be analyzed?
Searching online, i found out that non-stationary cannot be analyzed with traditional econometric techniques as in case of non-stationarity some basic model assupmtions are not met and correct ...
