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19 votes
6 answers
23k 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 ...
Ice's user avatar
  • 407
13 votes
1 answer
239 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 ...
tshauck's user avatar
  • 765
12 votes
1 answer
533 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 ...
FES's user avatar
  • 121
11 votes
1 answer
339 views

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, \...
amber's user avatar
  • 281
9 votes
1 answer
679 views

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 ...
Paul's user avatar
  • 523
8 votes
1 answer
795 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+\...
DSilva21's user avatar
6 votes
2 answers
417 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 ...
Hans-Peter Schrei's user avatar
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 ...
user1050421's user avatar
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 ...
Corn's user avatar
  • 181
5 votes
1 answer
2k 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?
Qwerty's user avatar
  • 179
4 votes
1 answer
1k 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 ...
user113156's user avatar
4 votes
1 answer
863 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 ...
Wolfy's user avatar
  • 728
4 votes
1 answer
156 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 ...
Rob's user avatar
  • 141
4 votes
0 answers
595 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" ...
benjaminmgross's user avatar
3 votes
5 answers
956 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) ...
tennisboy's user avatar
  • 331
3 votes
1 answer
847 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 ...
Deb's user avatar
  • 353
3 votes
1 answer
8k 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 ...
Lookout's user avatar
  • 257
3 votes
3 answers
13k 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 $S_t$. ...
Daneel Olivaw's user avatar
3 votes
2 answers
673 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 ...
410 gone's user avatar
  • 316
3 votes
3 answers
208 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? ...
RCafe's user avatar
  • 49
3 votes
1 answer
312 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 ...
Rodolfo Oviedo's user avatar
3 votes
1 answer
795 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 ...
Lookout's user avatar
  • 257
3 votes
3 answers
343 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 ...
Pandaaaaaaa's user avatar
3 votes
0 answers
681 views

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 ...
Ice's user avatar
  • 407
2 votes
2 answers
352 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 ...
Ivan's user avatar
  • 123
2 votes
1 answer
294 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,...
peter5's user avatar
  • 45
2 votes
1 answer
216 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?
e271p314's user avatar
  • 123
2 votes
1 answer
935 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 ?
user18871's user avatar
2 votes
1 answer
224 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 ...
Wolfy's user avatar
  • 728
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: $$...
idknuttin's user avatar
  • 203
2 votes
1 answer
106 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
Victor's user avatar
  • 285
2 votes
0 answers
182 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 ...
Acapulco's user avatar
2 votes
0 answers
65 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?
Nav89's user avatar
  • 173
2 votes
0 answers
163 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 ...
DestructiveStudent19's user avatar
2 votes
0 answers
727 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 ...
aalberti333's user avatar
1 vote
1 answer
171 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 ...
Wolfy's user avatar
  • 728
1 vote
1 answer
782 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 ...
Student's user avatar
  • 361
1 vote
2 answers
145 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, ...
TryingtobeQuant's user avatar
1 vote
1 answer
218 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 ...
Wolfy's user avatar
  • 728
1 vote
1 answer
124 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 ...
Ramesh Kadambi's user avatar
1 vote
1 answer
70 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.
Neemo's user avatar
  • 11
1 vote
1 answer
664 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?
SinusK's user avatar
  • 33
1 vote
1 answer
252 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(...
SinusK's user avatar
  • 33
1 vote
1 answer
162 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, ...
rrg's user avatar
  • 979
1 vote
1 answer
589 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 ...
KaRJ XEN's user avatar
  • 257
1 vote
2 answers
547 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 ...
guyov's user avatar
  • 27
1 vote
0 answers
54 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 ...
Oliver Queen's user avatar
1 vote
0 answers
117 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, ...
GPUMan's user avatar
  • 11
1 vote
0 answers
168 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 ...
Yoosang  Lee's user avatar
1 vote
0 answers
92 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 ...
Nav89's user avatar
  • 173