Questions tagged [simulations]
The simulations tag has no usage guidance.
68
questions with no upvoted or accepted answers
7
votes
0answers
323 views
simulating from the CIR++
I am looking at the CIR++ model which is described in interest rate models by Brigo et al, and was wondering on how to actually simulate from this model. The model reads
$$r_t=x_t+\phi(t),$$
where $...
4
votes
0answers
117 views
Long-term proportion of convex and concave strategies in artificial financial markets
In their classic paper "Dynamic Strategies for Asset Allocation" Perold and Sharpe state:
"That convex and concave strategies are mirror images of one
another tells us that the more demand there ...
4
votes
0answers
126 views
How does one simulate intraday strategies which don't end up flat at the close?
I ran into this trying to simulate trading interlisted names between the NYSE and the TSX.
Depending on my strategy parametrization it would sometimes end up with a significant short or long dollar ...
3
votes
0answers
40 views
Numerical approximation of SPDE
I've already posted this question on MSE, but I'm not quite sure if it's the right community so I'm posting it here as well.
Background
I want to approximate an SPDE of adensity process $V_t$. The ...
3
votes
1answer
312 views
Simulation scheme for SABR beside the standard Euler discretization
QUESTION:
Beside Euler Scheme, is there another more robust (and preferably easy to implement) way to simulate asset path with SABR dynamics?
Simulation that will withstand even for high volatilities....
3
votes
0answers
129 views
Simulating volatility process in the Heston model using the relation between the CIR Process and Ornstein–Uhlenbeck processes
I am trying to simulate the volatility process in the Heston model using the relation between the CIR Process and Ornstein–Uhlenbeck processes. In fact, giving $\mathbf{X}$ a $n$-dimensional vector ...
3
votes
0answers
84 views
Equity Options - "How do I build a forward simulation model with regards to shocks in spot pricing and IV?"
I am trying to build a "What-If" Portfolio, consisting of a total of 20 options, across different tenors, strikes (delta), but on the same security.
Simply put, the objective is for me to test the ...
3
votes
0answers
102 views
Electricity Prices: Change of measure in practice
I'm working on a model of electricity prices. I have empirical data $X(t)$ and managed to find a reasonable fit given by a Levy process $\hat{X}(t)$. I understand in theory what a risk-neutral ...
3
votes
0answers
49 views
Regularity requirement for convergence of Euler scheme for stochastic integral?
Let $S_t$ be follow Black Scholes, then I am interesting in simulating the process
$\int ^t _0 e^{-rt}1_{\{S_t\leq K\}}dS_t$
which is like a naive hedge of a European put, which does not work in ...
3
votes
0answers
182 views
How to simulate stock price with support and resistance level
I couldn't find good resources on how to simulate a stock price data sequence including some basic effects.
The basis might be a Brownian motion model; but in real stock prices, there are additional ...
3
votes
0answers
4k views
Models for simulating FX movements
My goal is to develop a model to simulate long term FX movements. (I am not sure if long term makes any difference, but if it does I am more interested in long term fx movements)
These Monte Carlo ...
3
votes
0answers
68 views
Credit spreads vs default events dependence
Reading this note it strikes me that credit spreads and defaults seem not to be commonly modeled jointly (e.g. more or less directly in structural models), but at best with some kind of "ex post" ...
2
votes
0answers
517 views
Simulating correlated Geometric Brownian Motion in Python
I want to simulate two correlated Geometric Brownian Motion processes in Python. I found an implementation from Matlab (https://www.goddardconsulting.ca/matlab-monte-carlo-assetpaths-corr.html) and ...
2
votes
0answers
29 views
Models that can improve FHS (with possible residuals manipulation)
The Filtered Historical Simulation (FHS) is a tough benchmark.
By:
choosing among the most complicated ARMA-GARCH variants with automatic model and lag selection,
manipulating standardized residuals ...
2
votes
0answers
124 views
Jump Diffusion Model - Volatility and Mean of Jumps
I am trying to understand the concept of jump diffusion model. So far what I've understood is that by adding a Jump parameter to a GBM (Geometric Brownian Motion) we can generate a Jump diffusion ...
2
votes
0answers
57 views
Negative theta in Log-linear stochastic volatility model
I was asked to simulate the following geometric Brownian motion to get paths for the SPX stock price. the process follows a Log-Linear stochastic volatility.
$dS_t = \mu S_tdt+e^VS_tdW_1 $
where ...
2
votes
0answers
1k views
Longstaff-Schwartz, special american option simulation using Python (numpy package)
I got a put option, which can be exercised 3 times, all at different times, which are each month of a year $$t_1 = \frac{1}{12}, t_2 = \frac{2}{12} ... t_{12} = 1$$.
Respectively, if exercised at $$...
2
votes
0answers
207 views
Multivariate Hawkes Process Simulation
I am trying to implement Ogata's thinning algorithm to simulate multivariate Hawkes Processes in Python (the algorithm can be found here: https://www.math.fsu.edu/~ychen/research/Thinning%20algorithm....
2
votes
0answers
114 views
Generating Correlated Quasi Random Numbers
Hi I am trying to generate correlated quasi random numbers using a sobol sequence in matlab. My Problem is the Following: Using "standard" random numbers it is easy to generate the 6 correlated random ...
2
votes
0answers
123 views
Simulating t-distributed returns by calibrating degrees of freedom $\nu$ from variance or kurtosis
A slight twist (I hope) on the familiar problem of simulating log returns from a t-distribution. My two questions concern calibration to sample data.
First, one can infer the degrees of freedom, $\nu$...
2
votes
0answers
153 views
Problems with exact Heston simulations
I am just wondering if there is any problem with the so-called "exact" Heston simulations? So far what I have seen are the good things about it, what are the disadvantages? Because if it is so perfect,...
1
vote
0answers
73 views
Backtesting - treatment of holidays for global (i.e. multi-market) portfolios
Assume a daily trading strategy where each day we rebalance our portfolio weights:
Situation A: all constituents of our portfolio are from the same market (e.g. a portfolio of S&P 500 stocks)
...
1
vote
0answers
60 views
How to get Risk-Neutral Drift for Trading Volume from Time Series
I am trying to price an option with Monte-Carlo simulation, where the payoff depends on some constants and a time-series (trading volume) which I model to follow a GBM. Now if I understood it ...
1
vote
0answers
94 views
Valuing American Options using Tilley algorithm
Hey I want to implement Tilley's algorithm (Valuing American Options in a Path Simulation Model by JA Tilley, 1993) to price american options. Where can I find implementation of this method in any ...
1
vote
0answers
44 views
Milstein scheme for Heston model - rate of convergence
Heston model is described by following SDE
\begin{equation}
\begin{aligned}
dS_t &= \mu S_t dt + \sqrt{\nu_t} S_t dW^S_t \\
d\nu_t &= \kappa(\theta - \nu_t) dt + \xi \sqrt{\nu_t} dW^{\nu}_t \\
...
1
vote
0answers
60 views
Milstein Scheme for Jump-Diffusion models
Hey in this report (Approximation of Jump Diffusions in Finance and Economics by Bruti-Liberati and Platen) is described the Milstein formula (3.5) for simulation SDE with jump component. How it is ...
1
vote
0answers
37 views
Gaussian Copulas: My Marginal Distribution Includes Negatives but My Copula is Non-Negative?
Attempting Copula in R for Stock Returns, Bond Returns, and Inflation Rates. This is my first attempt with Copulas but I have looked many places and cannot determine what I'm doing wrong. My Marginal ...
1
vote
1answer
138 views
Simulating correlated Geometric Brownian Motion with lag
I know that it is possible to simulate two correlated GBM in e.g. Matlab (Generating Correlated Asset Paths in MATLAB) based on cholesky decomposition. However, they take as input the correlation ...
1
vote
0answers
153 views
Source on multivariate correlated geometric Brownian motion returns, not prices
Can anyone provide a source that formulates how to generate multivariate geometric Brownian motion returns using the Cholesky method with target correlation matrix, instead of correlated GBM prices?
...
1
vote
0answers
33 views
Combining multiple securities' Net Asset Value time-series into one total NAV series
I have a number of individual securities that each have a Net Asset Value (NAV) time-series. For example:
...
1
vote
0answers
67 views
Anyone got references where we can find examples of codes for agent-based simulations of financial markets?
I'm looking for references with codes for trying out simple agent-based simulations for modeling financial markets. I mostly worked with MATLAB and R, but I know a bit of python and I am learning C++ ...
1
vote
0answers
51 views
CVA for a portfolio of long and short options
I am looking to estimate the CVA/DVA for a portfolio of options.
For simplicity sake, let's assume there are two FX options in the portfolio, one long and one short. Both options have the same ...
1
vote
0answers
38 views
ES using historic simulation
Why is the data obtained from 91-100 days all eliminated from the calculation of the 1-day 95% ES? My interpretation is because the first day to calculate the 95% ES should be the 90th day? But I can'...
1
vote
1answer
281 views
Formula for quantiles of swaprates in the 1-factor Hull-White model
Is there a closed formula to approximate the quantiles of swaprates in the 1-factor Hull White model?
Background
The Hull-White is a Gaussian model for the short rate. Its mean and covariance ...
1
vote
0answers
34 views
Why do simulation schemes have difficulty in pricing options with low spots?
If you apply a simulation Scheme (log-Euler discretization, Euler discretization and even more advanced ones) on for instance SABR and other models, then they price a call option (where we can easy ...
1
vote
0answers
78 views
Pricing call option on bond under CIR model by simulating noncentral chi square distribution
In the original paper of CIR model, there is a pricing formula about call option on bond
$$
\begin{array}{l}{C(r, t, T ; s, K)} \\ {=P(r, t, s) \chi^{2}\left(2 r^{*}[\phi+\psi+B(T, s)] ; \frac{4 \...
1
vote
0answers
33 views
Why no prepayment fee for the reverse mortgage?
I am currently studying the costs (to lender) of adding certain additional options to the reverse mortgage, including the option of prepayment. Would there be any scenarios of housing price/mortgage ...
1
vote
0answers
23 views
Simulating Taxed Equity Return Series (U.S.)
I'm looking to learn how to correctly simulate taxes on dividends and capital gains on simulated return series for U.S. Equities with dividend reinvestment. I understand I will have to keep track of ...
1
vote
0answers
126 views
Monte Carlo Simulation of correlated returns based on different frequencies
I am simulating through Monte Carlo, multivariate correlated returns of different products composing an Oil&Gas portfolio. The historical prices (from which I computed the log-returns) of the ...
1
vote
0answers
46 views
Bootstrapping to Judge the Fit of a Sampled Return Distribution
Consider the following: I have sampled yearly stock returns from a specified distribution.
What I want to do is compare how well my sampled distribution fits the empirical distribution of yearly ...
1
vote
0answers
237 views
Open Source library for calculating exposures?
I would like to know an open source quantitative library/ies that can calculate exposures out of the box (I have investigated a bit on OpenGamma/Strata libraries with no luck and the website of ...
1
vote
0answers
144 views
Simulating asset returns: (Academia) state of the art
I want to run some simulation studies of (linear) factor models and for that reasons I am wondering about the features such a simulation should contain - every suggestion is welcome, I'll do my best ...
1
vote
0answers
43 views
Simulating Asset Prices by Independently Simulating Supply and Demand
If I have an asset, whose supply is generally mean-reverting and whose demand is generally cyclical, could I somehow simulate / project the supply and demand levels across multiple discrete time ...
1
vote
0answers
129 views
Smooth ornstein uhlenbeck process
I want to simulate paths for a commodity price. I use the historic data in the following way:
$X_t$ is the price.
$\ln\left(\frac{X_t}{X_{t-1}}\right)$ is the daily return.
I calculate the slope of ...
1
vote
0answers
83 views
How are Levy driven SDE simulated?
Do you just use an Euler scheme as before?
E.g. take this process, OU process with a Levy driver.
\begin{equation}
\text{d}V_t = -\lambda V_t\text{d}t + dZ_t
\end{equation}
Do you just have
$V_{...
1
vote
0answers
572 views
Stochastic Vol simulation - Quant job interview question
this is a question from a quant interview (FO quant for IR Exotics for a big 4). First it might be useful when preparing your interviews, second, any brainstorming will be appreciated. Note that no ...
1
vote
0answers
41 views
Optimizing Monte Carl integral calculation with control variate
For an exercise I am asked to calculate an integral with a monte carlo simulation, after that I need to optimize the results with a control variate. This was the given integral:
$\int_0^1 \! \frac{\...
1
vote
0answers
121 views
Generating financial data
I am trying to generate monthly stock data using a one-factor model:
$$R_{a,t} = \alpha + BR_{b,t}+\epsilon_{t}$$
The description says:
$R_{a,t}$ is the excess asset returns vector, $\alpha$ is the ...
1
vote
0answers
153 views
What are commercial impact models and transaction cost analysis models out there for simulation?
I have heard that ITG, LiquidMetrix, MarkIT and TradingScreen has good Transaction Cost Analysis (TCA) research. I wonder which firm one would choose to have an impact model formula inside his ...
1
vote
0answers
114 views
Review of Excel Stock Simulator
I am currently a senior in high school and I built a stock simulator using knowledge gained from a semester of AP Statistics. I was wondering if someone could tell me if my simulation is legit/...
