Questions tagged [financial-engineering]

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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 ...
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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 ...
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98 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{...
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90 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 ...
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63 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 ...
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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 ...
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166 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 $...
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1answer
74 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 $...
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133 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 ...
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80 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. ...
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120 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 ...
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177 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: ...
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1answer
518 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) - ...
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1answer
59 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 ...
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1answer
374 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}...
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50 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 ...
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42 views

advances in financial machine learning - problem regarding to insufficient number of financial data to train ML algorithm

After reading 'Advances in Financial Machine Learning' by Marcos Lopez de Prado, I wonder how can we train machine learning algorithm with too few financial data. If we use cumsum filter etc the ...
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37 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 ...
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58 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 ...
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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 ...
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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.
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1answer
219 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
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101 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(S_t,...
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339 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 ...

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