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Units in the Avellaneda and Stoikov Model

The Avellaneda-Stoikov model calculates the optimal bid and ask prices. The reservation prices are given by: $$s(q_t, t, T, \sigma_{(t+p)}^2, \gamma) = q_t \gamma \sigma_{(t+p)}^2 (T - t)$$ Where $I_{...
Curious G's user avatar
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39 views

Risk aversion and inter dependency in finance

In almost all papers that I read in quantitative finance trying to model a situation where several financial agents interact the distribution of the individual risk aversion is considered as ...
G2MWF's user avatar
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1 vote
1 answer
95 views

Is there a "standard" "textbook" model for making re-financing decisions?

You have a loan with an x% interest rate. Rates fall to y%. Should you pay a fee to refinance? Presumably not if the NPV of the saved interest is less than the fee. However, if you always refinance ...
Thomas Redding's user avatar
3 votes
1 answer
302 views

Given a statistical model which predicts price, how to determine trading strategy?

Let us assume that we have a statistical model such as ARIMAX that predicts the daily closing price of an asset for the next 30 days. Assume starting capital of $1mn. The model will make new ...
MilTom's user avatar
  • 165
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0 answers
180 views

Convexity adjustment future/fra in practice

The topic of Future/FRA adjustment has already been addressed on a theoretical point view, roughly we need a rate model to calculate the covariance between the money market account of the discount ...
Canardini's user avatar
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1 vote
0 answers
105 views

Cheyette Model vs Markov Functional Model

Just like to understand more about the model difference between 1d-Cheyette Model vs 1d-Markov Functional Model. Is there a model difference betweeen these 2?
Benedict's user avatar
  • 336
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0 answers
53 views

Simple short rate model that generates ZCB skew

Which is the simplest short rate model that generates ZCB vol skew ? I want to use it afterwards and do simple "on paper" qualitative development about its dynamic(I don't need a model I can ...
stackoverflower's user avatar
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0 answers
23 views

Estimating expectation from a Markov chain process with AR(1) framework and stochastic volatility

I have a stochastic volatility model of a commodity price as follows: ...
nusratecon's user avatar
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0 answers
138 views

What is wrong with my HAR model - constantly increasing?

I am trying to code the HAR (and eventually the HARQ) from Bollerslev et al 2016 and Corsi 2009. $$ RV_t = \beta_0 +\beta_1 RV^d_{t-1} + \beta_2 RV^W_{t-1}+\beta_3 RV^M_{t-1}+u_t $$ Bollerslev ...
BlueTurtle's user avatar
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0 answers
83 views

Derive the Probability of Default (PD) of private companies with Merton Model

Do you know a well used method how to calculate the PD of private companies using the Merton Model. The main challenges I am facing is to get the appropriate volatility of the assets and the drift. ...
Bsleon's user avatar
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1 vote
1 answer
100 views

Identify upcoming stock price gaps in Implied Volatiltiy (quant / standardized approach)?

What you often obeserve in implied volatiltiy are higher levels of implied volatility for upcoming events like earnings or presentation of pharma data. For a human being which collects manual the ...
user9579831's user avatar
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116 views

Validity of Bermudan Swaption's Price/Greeks

I'm implementing a lot of stochastic models on my own for fun and I'm quite puzzled about the usual procedure concerning the correctnes of Bermudan swaptions prices and greeks ? How can you tell that ...
Hilbert's user avatar
  • 63
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1 answer
81 views

Adequate model to payoff

Consider a payoff that pays a certain amount N of a vanilla Call (underlying: S, Maturity= T, strike:K). Every semester date Ts before T, if S>K(Ts), then N is increased by 1. This product seems ...
user25844's user avatar
  • 365
0 votes
1 answer
133 views

Applying the Gordon stock model when there is one change in the dividend growth rate [closed]

Below is a problem I did. I am hoping somebody can confirm I did it correctly, or tell me where I went wrong. Problem: ABC Corp. has just paid a dividend of \$3 per share. You—an experienced analyst—...
Bob's user avatar
  • 261
9 votes
3 answers
1k views

A question about the Grossman-Miller Market Making Model

I don't have any solid background in finance, but I have a strong mathematics and physics background. I am reading Algorithmic and high-frequency trading from A.Cartea, S.Jaimungal and J.Penalva, CUP (...
apt45's user avatar
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0 answers
64 views

Italy Zero Coupon Yields

I am looking for historical data for Treasury bills and bond yields for Italy on a monthly or daily basis. Where can I get this data?
Doreen's user avatar
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1 vote
1 answer
593 views

Expectation of the negative exponential utility function for a Grossman and Miller model

I have the standard $3$-period Grossman and Miller model with $2$ outside traders and $M$ market makers. I'm told: $W_t^{(1)}, W_t^{(2)}, W_t^{(m)}$ is the wealth of the first outside trader, second ...
Charlie P's user avatar
6 votes
0 answers
124 views

What are the requirements for no arbitrage to exist in a chaotic/dynamical system?

Consider the continuous dynamical system $$\alpha\ddot{S}+\dot{S}=\mathcal{F}(S,t),$$ such that $\alpha\in\mathbb{R}$ and $\mathcal{F}$ is real and analytic. We assume that if a solution for $S$ ...
UNOwen's user avatar
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7 votes
0 answers
291 views

Seeking criticism of model assumptions

I have been trying to publish a new calculus and options model for seven years. I have been consistently desk rejected, so what I am trying to do is get criticism of my assumptions because they ...
Dave Harris's user avatar
  • 4,299
0 votes
1 answer
164 views

Heath Jarrow Morton Framework

Can someone please explain Heath Jarrow Morton framework ? Why do we use it ? I understand the logic between equilibrium models and no arbitrage models but i'm struggling to understand the added value ...
Gogo78's user avatar
  • 636
2 votes
1 answer
330 views

Put-call parity on SPY

I'm currently trying to model the IV curve for calls and puts on SPY using the Black-Scholes model with dividends. I'm able to calibrate the risk-free rate and dividends so that both ATM IVs match, ...
Alex's user avatar
  • 81
10 votes
2 answers
2k views

Risk Model Validation

I have such a general question regarding risk model validation. Which tools are most often used for validation and how does the process work? Could you recommend any books that focus on this topic?
Mr.Price's user avatar
  • 433
0 votes
1 answer
88 views

Why are implied parameters preferred over expectations of future implied parameters?

For example, when we price options on assets under the Heston model, we often compute the volatility of the volatility of the price of those assets implied by the market at time $t=0$ using the market ...
user54908's user avatar
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0 answers
66 views

Algortihm for distributing volume for 1min candle

Context: I have historical 1min prices for stocks, including premarket. However, when importing real-time data, the standard practice in the financial data industry is to give only OHLC (open, high, ...
Artur Dutra's user avatar
0 votes
1 answer
554 views

Geometric brownian motion small timesteps high volatility

I'm trying to generate some sample geometric brownian motion paths for an asset which is traded 24/7 without interruption and is highly volatile (upwards to 150% implied volatility on options markets)....
Experience111's user avatar
3 votes
1 answer
431 views

Non-constant Volatility of the Volatility in Stochastic Volatility Models

In pricing financial derivatives, we often first assume that the volatility of the stock price is constant. $$\mathrm{d}S(t) = \alpha S(t) \mathrm{d}t + \sigma S(t) \mathrm{d}W(t)\text{.}$$ The ...
user54908's user avatar
  • 437
-2 votes
2 answers
309 views

Is it a problem that there are so few stocks in the generalized Black Scholes market? [duplicate]

In the standard Black Scholes market there is only one stock. In the generealized market there can be a finite amount, but my impression is that there are few stocks in the market. The real world ...
user394334's user avatar
0 votes
1 answer
116 views

Margin Requirement model for CCP and non-central cleared OTC derivatives

What the models for computing margin requirement for central counterparty (CCP) and non-central cleared OTC derivatives.
user460329's user avatar
8 votes
1 answer
2k views

Bermudan Swaptions - Payer vs. Receiver (LGM)

There is abundant literature discussing the pricing of Bermudan swaptions and the relevance of single-factor Markov-functional models (e.g. LGM) versus multi-factor market models (e.g. LMM). From a ...
Quantuple's user avatar
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1 vote
0 answers
44 views

Model Documentation role [closed]

first timer here,I received an 'inmail' on linkedin from a recruiter regarding a role in model documentation team as part of the quantitative modeling and analytics department of a 'global bank'. The ...
ADAMS zequi's user avatar
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0 answers
60 views

Career Advice Model Documentation Role (What is it exactly? and transition to wider quant role in future, can't find info online) [duplicate]

first timer here,I received an 'inmail' on linkedin from a recruiter regarding a role in model documentation team as part of the quantitative modeling and analytics department of a 'global bank'. The ...
ADAMS zequi's user avatar
0 votes
2 answers
113 views

References on cashflow modelling for private equity

I would like to build a model to predict capital calls and distributions of a private equity fund. The first question is: does any of you can address me towards the state of art for it? also machine ...
Luigi87's user avatar
  • 326
0 votes
1 answer
92 views

Approach for studying price gaps in US equities

A price gap is defined as any day when the high / low / close price bar for that day does not overlap the previous day’s high / low / close price bar. I am interested in studying stock price gaps ...
user1433167's user avatar
4 votes
2 answers
293 views

what does the cover page of Guyon and Labordere's Nonlinear Option Pricing represent?

It could be a bit offtopic, but I don't see the link between the contents of the book and the cover page. Thanks
stackoverflower's user avatar
2 votes
0 answers
184 views

Do we model stock prices using non-Markovian processes in continuous setting?

In a continuous setting, is it common to model stock prices using non-Markovian processes ? If so, do you have some examples of models ? Or is Markovianity something "embedded" in the ...
W. Volante's user avatar
0 votes
0 answers
65 views

Quantitative Model classification

In the world of Quantitative model risk management, can you please tell me what is Model 1 type, ...
Brian Smith's user avatar
0 votes
1 answer
85 views

Can I dynamically change hyper-parameters of a model?

Question Can I apply different hyper-parameters for different training sets? I can see the point of using the shared parameters but I cannot see the point of using shared hyper-parameters. The ...
Eiffelbear's user avatar
1 vote
1 answer
278 views

Stochastic volatility Levy models

Hey I have some questions about stochastic volatility for Levy processes. If I understand correctly, if we change the time in Levy's process by CIR process, the newly received process is not Levy's ...
Math122's user avatar
  • 443
1 vote
1 answer
112 views

modelling FX with crosses: USD conversion on entry and exit, or just exit?

I am backtesting a model that trades currency crosses (i.e. EurGbp) at a fixed $1 mln per trade and was curious if I need to a) account for my currency exposure to GBP on both ends of the trade or b) ...
trock2000's user avatar
  • 135
1 vote
1 answer
193 views

Loan level model to understand drivers of mortgage prepayments

I am following up from my question here. As described there, I'm trying to assess the drivers of CPRs for a type of MBS. However, I want to understand, how a loan-level model of such a relationship ...
Jojo's user avatar
  • 895
1 vote
1 answer
101 views

How to set up data for understanding drivers of prepayments

I would like to understand the drivers of prepayment of a certain sector of MBS. I have some explanatory variables that I think would explain the actual CPR's and want to model the prepayments through ...
Jojo's user avatar
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0 votes
0 answers
122 views

Is there a framework to study quantitative model robustness/uncertainty?

Can you point me to any resources about a possible framework to analyse and possibly quantify model uncertainty and -robustness associated with quantitative investment models? As an example, there ...
MGL's user avatar
  • 516
3 votes
0 answers
227 views

Linear programming optimization problems in finance

I'd like to know what are, if any, the applications of linear/non linear programming optimization techniques for financial markets. I'm a business major, and I want to find an argument for my thesis ...
Francesco Totti's user avatar
2 votes
1 answer
703 views

Interpretation of parameters in the CGMY model

I would like to understand role of parameters $C,G,M,Y$ in CGMY model, especially $G$ and $M$. The Lévy measure is $$\nu(x)=C\frac{e^{-Mx}}{x^{1+Y}}1_{x>0}+C\frac{e^{-G|x|}}{|x|^{1+Y}}1_{x<0} $$...
Mr.Price's user avatar
  • 433
0 votes
0 answers
117 views

Inter-temporal structural stability of stock markets

For my bachelor thesis I am trying to determine structural stability of some stock market in the following way: Identify an ARMA model for the whole sample Split the sample in two parts, and estimate ...
JMK's user avatar
  • 13
4 votes
1 answer
695 views

What does it mean that model can reflect the ”volatility smile”

I know that implied volatility is the value for which the Black Scholes model returns the correct option price. I also know that if we plot the volatility on the strike price chart, we will see "...
Math122's user avatar
  • 443
-1 votes
2 answers
94 views

I just got Matlab, what are some options that I should model in a jump diffusion

Don't worry I understand mathematics: ito's calc, martingales, etc. I am just curious what options I should test, and from what indices. Is there stuff I can test from the 2008 crash to measure their ...
Oop's user avatar
  • 27
2 votes
1 answer
226 views

Is it always better to use the entire distribution of a financial returns series, not just $\mu$ and $\sigma$?

In finance models that use historical returns for inputs, including option pricing models, forecasting and portfolio optimization, only the statistical moments of the returns distribution, $\mu$ and $\...
develarist's user avatar
  • 3,000
2 votes
1 answer
777 views

Market Making Formulation

I'm developing a deep reinforcement learning based approach to market-making. In order to implement this, I need to define the appropriate actions and define environmental steps. While doing some ...
BGa's user avatar
  • 169
1 vote
0 answers
47 views

What's the industry standard/typical way to model contango or futures spreads?

If you want to include futures spread either as a response or predictor, I would imagine you also need to include time to expiration somewhere in your model. What is the industry standard way to ...
confused's user avatar
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