Questions tagged [quantitative]
The quantitative tag has no usage guidance.
112
questions
0
votes
0answers
32 views
How to optimizer alpha signals when the estimated uncertainty of signal is known
Suppose we have the alpha signal $\alpha_i$ for a collection of $N$ stocks $i=1,2,...,N$. Typically, we will use $\alpha_i$ to construct our portfolio as
$$
P=\sum_i \alpha_i \cdot S_i
$$
with $S_i$ ...
6
votes
2answers
174 views
Differencing vs Detrending financial time series
I'm quite newbie to time series analysis and I have to understand what's the difference between differencing time series (i.e considering $Y_t= X_t-X_{t-1}$) and detrending (using linear regression ...
2
votes
2answers
126 views
Carry vs Roll-Down on a zero-coupon IRS
I am trying to understand the differences between carry vs roll-down on a zero-coupon interest rate swap.
Lets say we have a 10 day ZC IRS, meaning we will only swap once on maturity. We are a payer ...
1
vote
0answers
62 views
How should I interpret the (insignificant) coefficients of Fama-French 3-factor model?
I am writing a mid-term thesis on the Fama-French factor model.
I have built 5 portfolios sorted by the Book-to-Market ratio. The first portfolio is the lowest-BM group and the last portfolio is the ...
0
votes
0answers
35 views
Negative drift when calibrating GBM parameters
Setup for question:
Consider a basket of $N$ stocks $\{S^1, S^2, \dots, S^N\}$. For fixed strike $K$, each stock in the basket, $S^i$, follows the SDE
$$dS_t^i = \mu^i(t) S_t^i dt + \sigma^i(K, t) ...
0
votes
0answers
30 views
Good benchmark for european Flexible asset allocation funds?
Flexible allocation funds usually do not state any benchmark.
Because flexible funds allocations are dynamic and less constrained, determining an appropriate benchmark for the funds is challenging. I ...
0
votes
1answer
46 views
How do I calculate option payoff before its expiration date? [closed]
How do I calculate option payoff before its expiration date? For example, if I long a 6 month call with K = 11100, T = 0.5, p = 150, what would be the payoff of the option if I exercise it in 3 months ...
0
votes
1answer
59 views
Definition Of A Portfolio
I have very recently started studying quantitative finance on my own through a book called An Introduction To Quantitative Finance by Stephen Blythe.
In chapter 6 of his book, he sets out to prove ...
1
vote
1answer
44 views
How is hypothesis testing work in population sampiling? [closed]
I am learning the basics of quant trading from quantconnect's tutorial Confidence Interval and Hypothesis Testing. I understood the first part of the article but I dont understand "Hypothesis Testing"...
4
votes
0answers
218 views
How to price the american options using local volatility
I have given with a surface of american option prices $C_{am}(T, K)$. From these american option prices the implied volatility surface is deduced.
Now I want to find the local volatility $\sigma(s,t)$...
0
votes
2answers
154 views
Factor-Based Equity Investing [closed]
What is the simplest way (process) to develop a factor-based investing strategy with STOCKS?
...
1
vote
2answers
216 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 ...
1
vote
1answer
202 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 ...
2
votes
0answers
79 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 - '...
4
votes
1answer
115 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
55 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
65 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
143 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
360 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
253 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
463 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
39 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
451 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
474 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
73 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
155 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
134 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
36 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
77 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
220 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
73 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
110 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
148 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
116 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
89 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
334 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
3answers
180 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
votes
2answers
1k 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
81 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
votes
0answers
254 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
118 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 ...
3
votes
0answers
110 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
834 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
68 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
108 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
121 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
731 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
268 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
96 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
134 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 ...
