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Questions tagged [quantitative]

The tag has no usage guidance.

3
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1answer
55 views

Is there such a thing as resonance in economic underliers?

In physics the occurence of resonance is explained and widely understood in its linear form and subject to research in nonlinear resonance. Example for instance are resonant frequencies of objects. ...
1
vote
0answers
45 views

Quantitative model for investing in ETFs [closed]

I want to build a model for asset allocation of my own personal pension in ETFs across four main asset classes: equity, bonds, commodity and property. I am familiar with Python and the basics of risk ...
1
vote
1answer
59 views

How to modify binomial tree to incorporate one more asset?

I wonder, what would happen if we use the binomial tree to price exchange option, an option to exchange one asset for another at the expiry date. Payoff is $\max(S_1-S_2,0)$ For instance, I have two ...
4
votes
1answer
73 views

Barrier Option from binomial tree

What is the smallest information structure that is required for using the binomial tree to calculate the price of a barrier (up-and-in) option? My gut feeling is any node below the node that reaches ...
-2
votes
1answer
165 views

Is R suited for a Quantitative Finance executable application

I wonder if a R-Shiny application works well for a production environment or the only option is C++. I make this question taking in account that R and C++ have a widely set of quant libraries that ...
4
votes
3answers
217 views

Who trades exchange options in practice (Margrabe's formula)?

I'm currently studying the pricing of the exchange option. https://en.wikipedia.org/wiki/Margrabe%27s_formula While I can appreciate the theory, who actually buys these options in practice? Are ...
-2
votes
1answer
263 views

How do I calculate the spot rate?

How can I calculate the rates to construct the curve? I was thinking to use the formula converting par yield to spot rate, but I am not confident about it. Please give some hints or working on how to ...
0
votes
1answer
37 views

Kenneth Frenches Data library return data to price data?

I have downloaded the industry portfolios from Kenneth Frenches data library, I am wondering if anyone knows where I can find the price data? Can I convert it even if I don't have a starting value? ...
3
votes
1answer
232 views

Monte Carlo model with multiple assets step by step

Here are the following steps to calculate Monte Carlo VaR. I am learning how to proceed with each steps and I would need somebody who can explain. Do I have to create only 1 vector in step 4 (even if ...
2
votes
1answer
143 views

Fama French sorting

I am trying to calculate my own monthly fama french factors SMB and HML and I have a general question about a final screening act. I understand that to sort companies in june of year $t$ they need to ...
1
vote
0answers
58 views

How to calculate Market Return based on an own sample?

I have read several papers and am more confused than clearer about my problem after the reading. I am trying to validate my sample. I use the Schmidt et al. paper (2015) as a guidance to construct ...
2
votes
1answer
150 views

Why Arent There Long Rate Models?

You have short rate models, https://en.wikipedia.org/wiki/Short-rate_model, but there doesnt seem to be any long rate models. I find this weird as in options modelling you model the whole smile, not ...
1
vote
1answer
101 views

Cash Flow News and Discount Rate News + Return

I will appreciate If someone help me to understand how the final expansion is made. Specifically, how CF & DR are drived. This model is introduced by Chen et. al. (2013).What Drives Stock Price ...
2
votes
1answer
33 views

Deriving the long-horizon predictive regression and hypothesis testing

I am working on the long-horizon regression, $$y_{t,K}=\mu+\beta_1x_{1,t-1}+...+\beta_nx_{n,t-1}+e_{t} $$, where $$y_{t,K}=y_{t}+y_{t+1}+...+y_{t+K-1}$$ and there can be multiple x's. So I am ...
1
vote
1answer
68 views

Why the spread is calculated on raw prices instead on the price changes?

I'm reading Quantitative Trading With R written by Harry Georgakopoulos. In chapter 6 he exposes a basic quantitative strategy based on setting up a stock spread and buy when it is below a lower ...
1
vote
0answers
118 views

Magnitude of the Diversification Ratio

How would I interpret the magnitude of the Diversification ratio? I know that the higher the number, the better, but is 1.1 massively different that 1.2? For example a sharpe ratio of 0.25 is ...
1
vote
1answer
63 views

How can I reproduce the experimental verification of the “False Strategy” theorem plot?

I recently came across the following blog post talking about the importance of back-testing overfitting, and a plot claiming to be an experimental verification of the False Strategy theorem. The ...
1
vote
1answer
84 views

Questions related to Sharpe's return-based style analysis

I have been reading about Sharpe's return-based style analysis, which tries to determine the manager's exposure/effective asset mix to changes in the values of the asset classes. It does so by using ...
1
vote
0answers
72 views

Zipline issue with SPY data

I have written a strategy to backtest in zipline, and every time I ran the backtest, and error is showed with the line: IndexError: index 0 is out of bounds for axis 0 with size 0 After a bit of ...
0
votes
1answer
92 views

Using Normal Distribution to forecast active return

I wanted advice on how to go about forecasting active return via a standard normal distribution, The asset is a security with annual volatility of 6%. The benchmark is a 5% annual return with 0% ...
2
votes
1answer
84 views

Sigma moves - annualize return or no?

This might be a very simple dumb question. But when you look at a security's annualized volatility over a 3 year period, assuming the security has an annualized vol of 5% and the drawdown over three ...
0
votes
2answers
232 views

question on XIRR (excel)

Let's say we have an initial investment of -10 on 1/1/2000, and from 1/1/2001 to 1/1/2018 (with annual payments on Jan-1 of each year for 18 years) we get a CF of +2 each year with a final payment of ...
0
votes
0answers
126 views

are there quantitative tools to work with python pandas?

I have a code written in python and I have all my data in pandas dataframe. Are there quantitative tools to apply to these dataframes? For example, I want to calculate rsi, macd and other financial ...
0
votes
3answers
148 views

Combining Quantitative data with fundamental data

These day, there is relatively new phenomena of combining quantitative data and fundamental data called 'Quantamentals'. In this regards, I was wondering how to combine Four Essential Types of ...
5
votes
2answers
611 views

What is time-varying risk premium? Forecasting stock returns

I am trying to understand the concept 'Time-varying aggregate risk premium'. Here is an extract from a Forecasting book, written by Rapach and Zhou, "However, rational asset pricing theory posits ...
0
votes
1answer
65 views

performance attribution - security selection= wB*(Rp-RB) or wP*(Rp-RB)?

Really confused. Finding various different ways of calculating security selection alpha. I believe it matters from whose perspective one is looking at. I am a portfolio manager and I want to know ...
5
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0answers
188 views

Bayesian strategy selection

I have N strategies/signals that I would like to allocate to. I want to estimate an estimate of future performance based off of recent realized performance (momentum of strategies per se - e.g. ...
1
vote
0answers
96 views

Explanation and Application of Quantile Regression of Value-At-Risk

Self-learner here. Please, excuse me if I am asking a Question already answered, but the explanations that I find online, just seem to be a bit hard for me. I am currently trying to apply the Basel ...
4
votes
0answers
105 views

How can we price an option taking into account the “issuer risk”?

I'm trying to take a closer look to option pricing in a risky environment. Let's say a firm $A$ sells me an (European) option on an underlying $S$ (which of course can be any other financial product ...
2
votes
1answer
653 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 ...
-1
votes
1answer
65 views

Multi-Factor Beta Help

I'm supposed to find a risk factor that could explain a stock (I chose Netflix) returns. Then, I am to calculate the beta with respect to the factor I suggested as part of a multi-factor model with ...
1
vote
0answers
88 views

Investment Bank VWAP Execution ranking

Is there a ranking of Investment Banks institutional VWAP execution algorithms anywhere (who beats the benchmark price most consistently and by how much)? Thanks
2
votes
1answer
108 views

minimum variance hedge with stochastic processes

Problem set up: asset S: $$\frac{dS}{S} = \mu dt+\sigma dz$$ Hedged using a forward contract: $F = F(S,t).$ Hedge portfolio: $$P = S+nF$$ I want to find the variance of $dP$, and then minimize that ...
1
vote
1answer
487 views

The R-squared of the four factor model.

Why does papers such as Fama and French (2010) and Barras et al. (2010) construct equal weighted portfolio of all funds when they analyse the aggregate performance of mutual funds? They both report ...
3
votes
2answers
224 views

Fama and French (market premium) factor

Currently I am using the Fama and French 3 factor model to explain the performance of mutual funds using monthly returns from 2000 to 2017. I use two market proxies: (1) RM-RF, obtained directly ...
0
votes
2answers
84 views

Disadvantages of large panel

I am currently researching if some fund characteristics such as (fund size, fund family size, capital flows, and fund age) explains fund performance measured (monthly alpha). Therefore, I am using a ...
0
votes
4answers
116 views

Why wouldn't quantitative easing work if interest rates approach 0

I was reading this article on quantitative easing. At some point, this is mentioned, referring to QE: This strategy loses effectiveness when interest rates approach zero, at which point banks have to ...
2
votes
2answers
219 views

Common misconceptions in Quantitative Finance? [duplicate]

This question is motivated by my experience of meeting some markets professionals who claimed certain things about Black Scholes and option pricing. So I am wondering what are some of the common ...
1
vote
2answers
204 views

A definition of quantitative finance [closed]

I would ask a sort of "philosophical" question. Is there any author who gave a scientific definition of this subject? Is it considered a branch of mathematics or does it primarily concern economics? ...
1
vote
2answers
1k views

Pricing Mark-to-Market Basis Cross Currency Swaps and Subsequently Constant Notional

Currently I'm working on my Master Thesis in Quant Finance in cooperation with a company. I would like to thank you very much for your time and help in advance! In my thesis I want to price Mark-to-...
3
votes
4answers
312 views

Mark Joshi Quantitative finance numerical techiniques, writting an algorithm that produces a random variable

Background: I am preparing for interviews and I was told to try and answer as many problems in the Mark Joshi book as possible. Question: Suppose an asset takes values from a discrete set $v_j$ ...
0
votes
0answers
53 views

CAPM Beta zero-correlation performance issue

I am working on a research project that requires me to run a CAPM regression on all intra-day stock quotes in NSDAQ, NYSE and all other U.S. exchanges since 1993. The precision of the quote data is ...
6
votes
1answer
374 views

The Heston Solution For European Option - Jim Gatheral

I have this equation (Eq. (2.4) "The Volatility Surface - A Practitioner's Guide" by Jim Gatheral (Ed. 2006)): $$-\frac{\partial C(v, x, \tau)}{\partial \tau}+\frac{1}{2}v \frac{\partial^2 C(v,x,\tau)}...
-3
votes
1answer
547 views

Which book would you recommend for beginners in Quantitative Finance? [closed]

I have a normal high school level of mathematics including some statistics and find the world of Quantitative Finance both alien and invigorating at the same time so, would like to learn more. What ...
4
votes
1answer
577 views

Black Scholes differential

I'm studying a BS derivation and I don't understand one part .We have a portfolio consisting of $\Delta(t)S(t)+B(t)$ where the first term is risky and the second is a riskless bond. The part i don't ...
1
vote
0answers
29 views

Numerical method to extracting a piece of a summation function?

So this is a pension framework. I am trying to code a system and I don't want to have to brute force this answer, but I can't figure out a clean solution. $$Fund = \sum_{i=1}^t [\cfrac{I\cdot e^{\...
1
vote
1answer
366 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 ...
1
vote
1answer
117 views

What is the principle of determining an arbitrary option price

First I want to talk about one of my wrong ways of pricing an European call option. When I consider the simplest case of European call option, the first idea of determining the price is to calculate ...
9
votes
4answers
831 views

Free or Relatively Less Pricey Quant Finance courses online

I am trying to figure out what all online Quant Finance courses are out there which are free or relatively less pricey? CQF is not less pricey Financial Engineering course on Coursera - Not so great ...
-1
votes
1answer
186 views

Error/Bug in computing the Hurst Exponent on timeseries

I tried calculating the Hurst Exponent using c#, and compared the results to a series with a known exponent. I am having the following issue in my calculations: 1- All my results are negative.. ...