Questions tagged [quantitative]
The quantitative tag has no usage guidance.
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158 views
Are there any quant strategies which do not involve simultaneous buying and selling of two or more assets?
Whenever I read about quant strategies it leads me to stratergies which involve simultaneous buying and selling of two or more assets. Pairs trading, arbitrage, market neurtal or headging all these ...
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1answer
63 views
Longstaff Schwartz algorithm
I am new in finance, I have implemented the Longstaff Schwartz algorithm for pricing american otion - one asset (dimension = 1).
My questions :
Does this algorithm still efficient for a high ...
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0answers
70 views
Jacobs and Levy: Enhanced Active Equity Strategies
Hello to everyone I am writing because I am having a bit of tough time figuring out how to replicate the constraints for a Portfolio Optimization using the set up from Jacobs & Levy 2006 - '...
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1answer
72 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.
...
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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 ...
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1answer
62 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
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1answer
77 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 ...
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1answer
198 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 ...
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3answers
226 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 ...
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1answer
283 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 ...
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1answer
38 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
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1answer
259 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
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1answer
170 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 ...
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0answers
59 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
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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
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1answer
107 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
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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 ...
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1answer
69 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 ...
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0answers
141 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
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1answer
64 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
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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 ...
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0answers
76 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 ...
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1answer
95 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% ...
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1answer
86 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 ...
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2answers
241 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 ...
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3answers
152 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 ...
4
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2answers
680 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 ...
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1answer
68 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 ...
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0answers
193 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. ...
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0answers
99 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 ...
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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
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1answer
672 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 ...
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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 ...
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0answers
91 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
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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 ...
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1answer
523 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
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2answers
232 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 ...
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2answers
85 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 ...
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4answers
120 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 ...
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2answers
220 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 ...
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2answers
207 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? ...
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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
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4answers
313 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 $v_j$ ...
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0answers
55 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 ...
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1answer
389 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)):
$$-\frac{\partial C(v, x, \tau)}{\partial \tau}+\frac{1}{2}v \frac{\partial^2 C(v,x,\tau)}...
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1answer
565 views
Which book would you recommend for beginners in Quantitative Finance? [closed]
I have a normal high school level of mathematics including some statistics and find the world of Quantitative Finance both alien and invigorating at the same time so, would like to learn more.
What ...
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1answer
591 views
Black Scholes differential
I'm studying a BS derivation and I don't understand one part .We have a portfolio consisting of $\Delta(t)S(t)+B(t)$ where the first term is risky and the second is a riskless bond. The part i don't ...
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0answers
29 views
Numerical method to extracting a piece of a summation function?
So this is a pension framework. I am trying to code a system and I don't want to have to brute force this answer, but I can't figure out a clean solution.
$$Fund = \sum_{i=1}^t [\cfrac{I\cdot e^{\...
2
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1answer
374 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 ...
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1answer
118 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 ...
