Questions tagged [financial-engineering]
The financial-engineering tag has no usage guidance.
84
questions
19
votes
6
answers
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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 ...
- 407
13
votes
1
answer
236
views
Breaking Transactions Down into Derivatives
We were talking about merger arb in a class I had last night, and when we got do deal construction it was mentioned that the different ways can be viewed as different options. For instance a fixed ...
- 765
12
votes
1
answer
528
views
Fixed income modeling
I am currently working on my research paper and trying to explain a two-dimensional variable: volume and instrument of corporate debt financing.
Independent variables that I believe must be included ...
- 121
11
votes
1
answer
336
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penalizing negative skewness by linking $U(\mu)$ and $U(\Sigma)$
Consider $U_1(\mu,\Sigma)$ and $U_2(\mu,\Sigma)$, where $U_1(\mu, \cdot) = U_2(\mu, \cdot)$, $U_1(\cdot, \Sigma) = U_2(\cdot, \Sigma)$ such that
\begin{equation*}
arg\inf\limits_{\mu \in U_1(\mu, \...
- 281
9
votes
1
answer
674
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Quantitative before/after or financial engineering studies of a bid or ask tax?
Has anyone in the quantitative finance or financial engineering community studied the effects of a bid or ask tax with actual or simulated data?
If so, what were the quantitative results or ...
- 523
8
votes
1
answer
769
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+\...
- 81
6
votes
2
answers
410
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 ...
- 1,736
5
votes
4
answers
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 ...
- 255
5
votes
1
answer
1k
views
Better understanding of the Datar Mathews Method - Real Option Pricing
in their paper "European Real Options: An intuitive algorithm for the Black and Scholes Formula" Datar and Mathews provide a proof in the appendix on page 50, which is not really clear to me. It's ...
- 181
5
votes
1
answer
1k
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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?
- 179
4
votes
1
answer
1k
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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 ...
- 75
4
votes
1
answer
740
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 ...
- 708
4
votes
1
answer
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 ...
- 141
4
votes
0
answers
585
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" ...
- 444
3
votes
5
answers
883
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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) ...
- 321
3
votes
1
answer
804
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 ...
- 353
3
votes
1
answer
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 ...
- 247
3
votes
3
answers
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 $S_t$. ...
- 7,959
3
votes
2
answers
666
views
Where can I find exercises on building a project finance spreadsheet?
I'm looking for a set of exercises that teach how to build a project finance spreadsheet.
I accept there may be no typical project finance, but there are a lot of principles are shared in common ...
- 316
3
votes
3
answers
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? ...
- 49
3
votes
1
answer
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 ...
- 158
3
votes
1
answer
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 ...
- 247
3
votes
3
answers
337
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 ...
- 427
3
votes
0
answers
678
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Test for stationarity and make use of non-stationary points in financial market?
I have two questions to ask:
What are the best methods to determine stationarity in a financial market (such as stocks) using MATLAB?
What methods would you recommend to use in order to change from ...
- 407
2
votes
2
answers
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 ...
- 123
2
votes
1
answer
276
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,...
- 45
2
votes
1
answer
210
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?
- 123
2
votes
1
answer
894
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 ?
- 23
2
votes
1
answer
217
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 ...
- 708
2
votes
1
answer
52
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:
$$...
- 203
2
votes
1
answer
105
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
- 285
2
votes
0
answers
95
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 ...
- 21
2
votes
0
answers
56
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?
- 173
2
votes
0
answers
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 ...
2
votes
0
answers
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 ...
- 174
1
vote
1
answer
162
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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 ...
- 708
1
vote
1
answer
706
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 ...
- 341
1
vote
2
answers
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, ...
- 533
1
vote
1
answer
209
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 ...
- 708
1
vote
1
answer
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 ...
- 199
1
vote
1
answer
69
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.
- 11
1
vote
1
answer
616
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?
- 33
1
vote
1
answer
250
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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(...
- 33
1
vote
1
answer
162
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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, ...
- 949
1
vote
1
answer
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 ...
- 257
1
vote
2
answers
541
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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 ...
- 27
1
vote
0
answers
49
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 ...
- 31
1
vote
0
answers
101
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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, ...
- 11
1
vote
0
answers
121
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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 ...
- 21
1
vote
0
answers
86
views
Mechanism design in continuous time models
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 ...
- 173