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Questions tagged [financial-engineering]

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3
votes
1answer
50 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
173 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
104 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 ...
1
vote
0answers
105 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
0answers
90 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
114 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
161 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 ...
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 ...
3
votes
1answer
294 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 ...
2
votes
2answers
147 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
1answer
911 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 ...
0
votes
1answer
64 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
384 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
236 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(...
1
vote
1answer
228 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?
2
votes
2answers
5k 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
158 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
2
votes
1answer
778 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
191 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
495 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
293 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
votes
1answer
417 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) - ...
3
votes
3answers
292 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 ...
1
vote
0answers
93 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
149 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 ...
3
votes
1answer
434 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
52 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 ...
0
votes
1answer
66 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
269 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 ...
1
vote
1answer
115 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
180 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
153 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
99 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
129 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
76 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
217 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
166 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
123 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
48 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 ...
2
votes
1answer
36 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
411 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
2answers
428 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
vote
0answers
99 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
122 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
93 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
42 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
254 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 ...
4
votes
0answers
419 views

Rate Distortion Minimization in a Python Clustering Algorithm

I'm attempting to solve for $\hat{k}$ clusters, such that the rate distortion is minimized, as described here, however, the answers that I am getting from my algorithm are not following the "Jump" ...
15
votes
6answers
19k 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 ...