All Questions

0
votes
1answer
52 views

Mean Variance Investment problem

I attach a part of a paper explaining how the weights of a market portfolio are derived. I do not understand how equation 5 has been derived and, in particular, where the zero beta portfolio's return ...
2
votes
1answer
73 views

SSVI parametrization motivation , SSVI implementation

I've read the following paper of Gatheral and Jacquier https://arxiv.org/pdf/1204.0646.pdf about volatility surfaces. I'm thinking about the SSVI surface. Is there any motivation why they choose ...
1
vote
1answer
61 views

Calibrate a SABR model?

How do you calibrate a SABR model using R/Python/Matlab? Using the data example from: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2725485 1) How does one calibrate the SABR model? 2) How ...
5
votes
1answer
59 views

Distribution of time integral of Brownian motion squared (where the Brownian motion occurs in square root time)?

Let $I_t = \int_0^t W_{\sqrt{u}}^2du$. What is the distribution of $I$? If I recall correctly, if the Brownian motion were instead $W_u$, then it would be $I_t \sim N\left(\frac{t^2}{2},\frac{t^4}{3}\...
1
vote
1answer
43 views

Looking for a paper related to tail risk of hedge funds and its decomposition

I am looking for a paper related to hedge fund tail risks (think skewness and kurtosis), decomposition of the tail risks into several components and their interactions with each other, other funds, ...
3
votes
2answers
123 views

Kelly criterion for normally distributed returns

If the returns of my strategy are distributed like 𝒩[μ,σ], what is the optimal fraction of capital to invest in each single trade, as a function μ and σ? Help! PS. I know that normally distributed ...
-1
votes
0answers
35 views

Statistical modeling of cash flow statement from income statement and balance sheet

Not sure if this is the right place (let me know if not), but here is my question: I would like to infer (and potentially predict) the breakdown of operating, financing and investing cash flow of ...
0
votes
0answers
34 views

Full Revaluation vs Factor-based Model for risk management

I am looking for literature on comparison of these two approaches. It looks like many places are using some type of Factor-based Model (Barra, Axioma, Northfield, etc.) for risk management purposes. ...
2
votes
2answers
147 views

Technical Analysis in HFT

Has anyone here used technical analysis (think MACD, RSI) in HFT setting and can comment on the usage as an entry/exit signal? Best
2
votes
1answer
43 views

Continuous Time Asset Model in Higham

I read Higham's derivation of the Black-Scholes equation in "An Introduction to Financial Option Valuation". The issue I am having is that it relies on some assumptions related to a continuous time ...
0
votes
2answers
86 views

Least-Squares-Monte-Carlo by Neural Network Estimator for pricing American Option Python

First I did the LSM (Longstaff-Schwartz) to understand how its work to price an American option. code for standard_normal ...
0
votes
1answer
35 views

Keep Saved IB Historical Data Accurately Adjusted

How have you dealt with adjusting saved historical data, specifically using the IB API? As far as I can tell, currently, I need to perform the calculations described on Quandl's blog. I haven't ...
-1
votes
0answers
20 views

Price selection for Commodity Pairs Trading

I am trying to model pairs trading on base metals using the one factor spread model. I have a question regarding the prices used in that model. Should i take the spot prices for the commodity futures ...
4
votes
1answer
64 views

Uniqueness of Risk-neutral measure: Probabilistic view

Suppose we are working on the Black and Scholes Framework. There are only two assets, the risk-less bank account and a stock. The discounted process is a GBM under the physical measure with drift term ...
0
votes
0answers
38 views

Why does normal distribution(or just distribution of return) is important in developing strategy?

I've read quant and strategy books for a couple of years but no book handles or deals with the importance of the distribution of return. But I think that the distribution of return and related topics ...
1
vote
1answer
75 views

Positive convexity swaptions

Can I please understand why payer swaptions have positive convexity and receiver swaptions have negative convexity? I understand payer swaptions are akin to put options on bonds and put options have ...
-1
votes
0answers
17 views

Calculating Prepayment and Actual Term of Loan Portfolio

I'm attempting to calculate the prepayment speed of group of loans (ex:60-month auto loans) and determine the real term length (60 month term repaid in 49 months). I also have a large amount of ...
4
votes
1answer
49 views

Discounted asset price is martingale in BS model

I want to verify that the discounted stock price process $\mathrm{e}^{-r(T-t)}V(S_t,t)$ is a martingale in the BS-model. Using Ito's formula and the BS-PDE I get that $$ \mathrm{d}\mathrm{e}^{-r(T-t)}...
0
votes
3answers
80 views

How to determine the optimal start capital for a strategy?

Suppose my strategy generates a stream of daily profits distributed like 𝒩[μ=1€, σ=10€]. Intuitively, if I trade with 10€ start capital: I could very well be ruined on the first day, if the first ...
1
vote
1answer
50 views

Getting rate from a share's given futures price, with known dividend information

Question was answered well by @Ezy, thanks for his help! Full answer in the comments below my question This seems to be a basic question, but mysteriously unsolvable as far as I can see. It ...
1
vote
0answers
25 views

How to reasonably aggregate returns across both different assets and different time-horizons?

This might be a somewhat open question, so any suggestion of improvement is welcome. Suppose at time $t=0$, we have $N$ different assets whose weights are $w_1,\cdots,w_n$ ($\sum w_i = 1$), and they ...
1
vote
2answers
62 views

Why do constant maturity bonds account for modified duration?

One can create a constant maturity treasury (CMT) by building a zero coupon discount curve and generating constant maturity bonds from that curve. This allows one to look further back than is possible ...
0
votes
0answers
17 views

How to properly modify an utility function and extensive list of functions

Scenario: After reading the https://quant.stackexchange.com/help/dont-ask help page, I really don't know if this kind of question is suitable to this place or if its just too open ended, therefore I ...
-2
votes
1answer
110 views

Work hours as a quantitative finance worker [closed]

How long does a quantitative finance worker work per day? Does he/she need to work over time? I've heard it depends on the field. Maybe no over work in big companies?
2
votes
0answers
54 views

Black Scholes to Heat Equation - Substitution

Sorry as really basic question. Chapter 8 of Wilmott introduces Q Finance the BS equation is transformed into the heat equation. Firstly by using $ V(S,t) \rightarrow \mathrm{e}^{-r(T - t)}U(S,t) $ ...
2
votes
1answer
58 views

Merton's Jump diffusion model: Specify poisson rate

Currently applying the Merton's jump diffusion to test how Option price change as parameters change. However, I am struggling to specify the poisson rate $\lambda$. We know that: $P(\text{There is a ...
1
vote
1answer
32 views

How to buy a stock as close to the marketopen price as possible in NSE?

I can place an order at 9.15 1s or 0s, using the API. The maximum change I can incur is +0.4%, kindly give your opinion on how I can do this? I use kite zerodha
1
vote
1answer
46 views

How to determine the cross rate in a triangular arbitrage

I am very confused about what two currencies are to be chosen as the cross rate in a triangular arbitrage. For example, when the bank quotes are ¥180/£ $1.5/£ ¥130/$ Does the cross rate have to be ¥...
1
vote
0answers
38 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....
-1
votes
0answers
36 views

Why results might differ when using risk-adjusted returns

Dependent variable is cumulative returns for a 40-trading-day window after an earnings announcement. Independent variable of interest is a variable related to investor attention around the earnings ...
2
votes
0answers
30 views

QuantLib - Synthetic deposit/FRA rates in yield curve

In my flat forwards dollar curve implemented in QuantLib I would like to add the following instrument: Today is 12/28/2018 Pillar quote is 1% p.a. (ACT/360) Pillar start is 1/30/2019 (specific ...
-1
votes
0answers
30 views

How to check if arbitrage is possibile in a recombining Binomial tree

Consider the recombining Binomial tree below; knowing that: $S_0 = 100$ is the cost of an asset at $t=0$ (now), $∆t$ is the distance between two time points, e.g. $∆t = 0.5 =$ six months, $...
-1
votes
0answers
15 views

Calculation of adjusted CDS spread changes in event study

I am conducting a study about the impact of credit ratings on credit default swap spreads for European Sovereigns. In the related literature, most authors use adjusted spread changes to account for ...
4
votes
1answer
94 views

Splitting theta from vol carry

What is the best way to splitting theta and vol carry on say a long calendar trade? Basically trying to split the "good" carry component of a trade from the "bad" carry (theta) which could be earned ...
-1
votes
0answers
22 views

Backing out market returns and Beta using multiple assets' excess returns and raw returns

I have a dataset where every asset's daily returns and excess returns throughout a number of years are available. Excess returns being: returns - beta * market returns, where beta is calculated using ...
2
votes
0answers
31 views

Basic Question on rate hikes priced in through Eurodollar futures (EDF)

(Say) The Mar19 Future price is 94.52(5.48%) and the Dec 19 Future price 94.27(5.74%), does this imply that markets expect a ~25bps hike specifically between the time period when the two contracts end ...
0
votes
1answer
53 views

implied volatility indice and implied volatility [closed]

Can anybody explain to me Why should we calculate implied volatility if there is already an implied volatility index where implied volatility is already calculated??? I can't understand the difference
-1
votes
0answers
20 views

STEPS to calculate implied volatility? [duplicate]

please what are the STEPS to calculate implied volatility for the German stock market?
2
votes
0answers
36 views

Simulating compound Poisson jump-diffusion process with time-changed jump frequency

I want to simulate a jump-diffusion process with compound Poisson jumps and a deterministic jump frequency function $\lambda(t)$. The function should follow the following stochastic differential ...
0
votes
1answer
34 views

Most Recent Stock Return for a Machine Learning Project

I am doing a machine learning pet project that requires me to construct a column for stock return between Jan 1, 2018 and today (Dec 26, 2018). I am basically looking for the most recent annual return ...
3
votes
0answers
94 views

Shrink covariance or correlation matrix

Is it preferable to shrink the covariance matrix vs the correlation matrix? Technically this amounts to either shrinking the sample correlation matrix and then transforming the shrunk correlation ...
1
vote
1answer
120 views

Basic question on USD Interest Rate Swap

I am just starting out as a rates and derivatives trader. Can someone please recommend some books for trading USD interest rate swaps (including risk management)? Any additional guidance would be ...
1
vote
2answers
37 views

Short position returns with negative NAV

I am using data on the opening, change and closing of short positions, but I am interested in when the profit/losses are made. Hence, I calculated daily the value of the short position by taking the ...
0
votes
1answer
34 views

Risk neutrality coherence with risk aversion

I haven't been able to find an understandable explanation why the risk neutrality is coherent with the risk aversion implication of the expected utility hypothesis. I can see that when using the risk ...
0
votes
1answer
21 views

variance unsystematic component

I was wondering how to calculate the variance of the unsystematic component in an asset. For example, if an asset's expected return is 10% with standard deviation of 6% and a beta of zero. What ...
0
votes
1answer
81 views

Why can derivatives be viewed as a portfolio of the underlying and the riskless asset?

I am struggling with the statement: "Every derivative of the underlying can be viewed as a portfolio of the underlying asset and the riskless asset." Is this based on the put-call parity? Also I ...
-1
votes
0answers
42 views

implied forward price using put call parity

I am struggling to understand how to model implied volatility for German stock market. I found in one article that I have to specify first the forward price to which it is associated using put call ...
1
vote
4answers
182 views

What are the benefits of publishing papers in mathematical finance/trading?

What are the benefits of publishing papers in mathematical finance and trading. Let us assume that the primary goal of a person/entity is to make money and reduce losses. Wouldn't publishing ...
-1
votes
0answers
21 views

What is par value and how it is different from face value

I read a post that some countries has no par value so that companies are no longer obligated to pay the share capital i.e. ( par value * share outstanding). But i also read that face value (or par ...
0
votes
1answer
24 views

SEC TO-C filings - existing sites that compile these filings?

I am interested in certain companies' tender offer filings, usually made with SEC TO-C schedule forms. Are there some already known sites that collate this information for free? If not I am thinking ...

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