# Questions tagged [financial-engineering]

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### 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.
12k 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 $S_t$. ...
53 views

### Hurst Exponent and Smoothed Hurst Exponent values are the same and incorrect plotting

I'm working on a script to calculate and plot the Hurst Exponent and Smoothed Hurst Exponent for a stock's historical price data using Python. When I run the script, I face two major issues: The ...
55 views

### For a trade to occur, should the ask price EXACTLY match the bid price, down to the last decimal point? [closed]

I had a doubt when going across the ways in which a trade happens. I have read that fora trade to happen, the buy order's price (bid) must match the sell order's price (ask). Now, what happens, if ...
100 views

### How to apply a funded equity collar to illiquid stocks?

I investigate a specific case of the funded equity collar [1]. Let's assume that counterparty $A$ already has a stake in share $XYZ$ and wants to get funding out of it from a bank $B$, which does not ...
1 vote
50 views

### Can I extend the private information model of Kyle in in a continuous analogue, e.g. the Ornstein–Uhlenbeck process?

Taking into account an old post of maths.stackexchange, I recall the following: On the one hand, we know that the Ornstein–Uhlenbeck process can also be considered as the continuous-time analogue of ...
1 vote
101 views

### Speeding up Cutting Edge Quantitative Models on GPUs? [closed]

I have a very strong interest in the use of GPUs in quantitative finance, and am in search of algorithms/simulations/models that can have their runtime heavily reduced by GPU computation. What models, ...
1 vote
118 views

### Martingales and Arbitrage in Multiperiod Securities Markets

I have been reading the paper "Martingales and Arbitrage in Multiperiod Securities Markets". The paper works in the probability space $(\Omega, F, \mathbf{P})$. $X$ is defined as the set of ...
1 vote
124 views

### Questions on the calculation of time series momentum

I read Moskowitz, Ooi, Pedersen's Time series momentum (2012). The ex-ante volatility estimate (equation (1) in the paper) is I am not sure about the period of the return reflected in the volatilty ...
1 vote
86 views

I am interested in mechanism design and information design. Is there any part of the literature in financial mathematics that is associated with them. I mean could we bring somehow these topics under ...
66 views

### Is there a financial instrument that is exposed to the change in growth of an asset over time?

Is there a financial instrument that is exposed to the rate of change of the value of a specific asset? If I believe a stock price will continue to grow in the future, but grow more slowly than in the ...
85 views

### Brownian Bridge from timestep 1 to timestep @ expiration, proper mathematical way to generate

When I was learning finance, we didn't cover the subject of Brownian Bridges. So I am trying to learn the proper way of generating paths when you have an arithmetic Asian option which has an ...
58 views

### Evaluating principal and interest at different points in time [closed]

Consider simple interest and suppose we have a certain principal and interest at t=7 months, we want to find the value of that amount of money when t=3 months. I would like to do it in two different ...
1 vote
181 views

### How to Show an Arbitrage Opportunity Exist From a Market-Linked CD?

A bank issues a market-linked CD that guarantees the original principal with an interest at an effective annual rate of 2%, plus 70% of the percentage gain on the ABC Inc. non-dividend-paying stock ...
2k 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 ...
178 views

### Can you use the Svensson model to fit a smoothed curve for yields on coupon paying bonds rather than spot rates?

i've been struggling to find an answer to this question online, I know most applications of the model are used on zero (aka spot) rates. But could you use yields from a sovereign yield curve (i.e ...
150 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 ...
1 vote
106 views

### using moment matching to price spread options (multi asset)

this is my very first question in this forum, after having been a greed follower since a few years, feeling that I need your help in a topic. I need to price a multi asset option that has the ...
201 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, the copula family ...
1 vote
708 views

### What's the interpretation of the probability of default implied from CDS spreads?

What's the time horizon of the probability of default implied from a CDS spread? Given CDS = PD*(1-R), if I use a 5yr CDS spread in the formula, is the implied PD the probability that that name ...
1 vote
577 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 ...
1k 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?
147 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 ...
374 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. ...
885 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) ...
119 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 ...
57 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?
203 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
364 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
179 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 ...
154 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
139 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, ...
283 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
71 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 ...
741 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 ...
290 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 ...
7k 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 ...
241 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: ...
2k 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
250 views

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### 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 ...
697 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 ...
367 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 ...
590 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) - ...
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 ...