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2answers
69 views

Why is higher the call price, the higher the price of a callable bond?

I am preparing for FRM level 2, but I ran into a question whose answer was confusing to me: In the answer, it says "all other things remaining the same, the higher the call price, the higher the ...
1
vote
2answers
78 views

Relationship mean variance efficiency and skewness of the return distribution?

I am wondering what the relationship is between skewness, kurtosis and mean variance efficiency is. Is it correct that particular investors are willing to give up mean variance efficiency in return ...
0
votes
1answer
26 views

Finding new convert issuances [on hold]

What is the best way to find new convert bond issuances? I have access to a Bloomberg terminal and google, and between the two I feel I ought to be able to find new issuances, but I can't. Every time ...
3
votes
1answer
113 views

stochastic dominance displaced diffusions

Suppose I have two processes both satisfying a displace lognormal diffusion: $$ dX(t) = \alpha(t)[X(t) - a] dW(t) $$ $$ dY(t) = \beta(t)[Y(t) - b] dW(t) $$ Note that the processes are perfectly ...
0
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0answers
43 views

financial markets

Let's suppose the following model of financial markets : Market-Maker : the sell financial derivatives, the hedge all the risk after calculating their sensibilities to market risk factors. Thus ...
2
votes
1answer
41 views

theta for SPX options vs. E-mini future options

Interactive Brokers currently shows the following data for SPX options at strike 3000 and expiry 2020-09-17: calls: bid/ask 234.10/236.30, theta -0.362 puts: bid/ask 146.70/148.40, theta -0.225 Then ...
0
votes
1answer
107 views

Is there an asset pricing model that actually works? Can you point me to research that test APMs?

As far as I know there is no APM that is able to explain all stock market anomalies. However, my search for papers empirically test a set of widely accepted APMs was not very successful. I would like ...
4
votes
1answer
323 views

Numerical simulation of Heston model

I am trying to simulate on Python random paths for a general asset price as described by the Heston model: \begin{equation} \begin{aligned} dS_t &= \mu S_t dt + \sqrt{\nu_t} S_t dW^S_t \\ d\nu_t &...
0
votes
0answers
66 views

Introducting a new probability measure

I'm trying to understand what means : $$ \frac {d \mathbb {\tilde{P}} }{d \mathbb P } \bigg\rvert_{\mathcal F_t }$$where $\mathcal F_t $ is a filtration I guess (not explicitely mentionned). they ...
1
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1answer
38 views

Understanding daily installment in futures

Question: Is my understanding of how futures contract works correct? Just trying to understand the basics of futures contract and its daily installments. Consider a discrete time model where $t=0,1,...
0
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0answers
24 views

Always make a discounted price integrable

In the book "Fundamentals and advanced techniques in derivatives hedging" of Bouchard and Chassagneux, in the discrete time modeling, it is written that we can always make price processes integrable. ...
1
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1answer
37 views

Understanding Walter's Dividend Policy Model

I'm trying to understand the justification for the mathematical formulation of the Walter model (1956), which provides an equation for the price of a stock based on present value of dividends and ...
1
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2answers
126 views

PCA and risk bucketing

I have a portfolio of bonds and I have calculated their PV01 per risk bucket. The relevant buckets are 1m,2m,...,1y,2y,...30y; a total of 40 buckets. I also run a PCA and have identified the three ...
1
vote
1answer
93 views

Calculating the Macaulay duration of a floating-rate bond

I am new to the pricing of bonds: Suppose that I would like to price a floating-rate bond with par value \$100, with maturity at $T$ years from now, paying coupons semi-annually. Suppose that $r_{n-...
1
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2answers
621 views

Extracting continuous futures prices on different dates with the ratio adjustment

I extract continuous prices for a set of futures contracts using Bloomberg. I select the Ratio as adjustment with the Bloomberg default settings. For instance, to extract the first/forward generic ...
1
vote
1answer
109 views

Repo- A few questions

A few questions which could be related to each other, to help me gain familiarity with repo. These are accompanied with my guess. If anyone can explain in layman's terms (this is new to me). 1) I ...
0
votes
1answer
51 views

setting up bloomberg api for python

I am trying to configure bloomberg api in python. I have used pip to install the api, i also downloaded the BloombergWindowsSDK. I am not sure where to go from here. Can i please get a step by step ...
0
votes
0answers
21 views

API that could be used for Dividend Growth years calculation?

I am trying to find API that gives historical info about dividend payouts from the very beginning of the companies or more or less so. I tried AlphaVantage, but it gives info only until 1999. For AT&...
7
votes
3answers
519 views

Why is there a convexity adjustment if the payment date differs from Libor end date?

A 3 month LIBOR that fixing at $T$, paying in 3 months does not have a convexity adjustment. However, 3 month LIBOR fixing at $T$, paying in 6 months needs a convexity adjustment. How is this shown ...
2
votes
1answer
142 views

Floating Strike Lookback Call Option

Assume the risk-free bond $B_t$ and the stock $S_t$ follow the dynamics of the Black & Scholes model without dividends (with interest rate $r$, stock drift $\mu$ and volatility $\sigma$). If $r=\...
1
vote
1answer
41 views

Why co-terminal swaptions are that important?

Usually Hull & White is calibrated to co-terminal swaptions. When asking why specifically co-terminal, I get the response that it is just a choice and it depends on the use we intend to do with ...
1
vote
1answer
199 views

Continuous Geometric Asian Options

Assume the risk-free bond $B_t$ and the stock $S_t$ follow the dynamics of the Black & Scholes model without dividends (with interest rate r, stock drift $\mu$ and volatility $\sigma$). Let $c(t; ...
0
votes
1answer
63 views

BHAR Event Study Data

I am about to run a long-run event study on certain events. For a short-term event study, I previously have used daily log returns. My question is now, what data I need for the BHAR one. Just monthly ...
0
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0answers
26 views

Transform Bond Yields into Forward-Rates?

There are many bond yield datasets available online; however not so many of them provide forward-rates. How can one convert yield curves into forward-rates? (I'm a bit cloudy on the definition of a ...
0
votes
1answer
81 views

Interpretation conditional volatility plot

I have plotten the log differences of exchange rates and in the same plot, I show the conditional volatility $\sigma_t^2$. The conditional volatility follows approximately the same path, but is much ...
0
votes
0answers
6 views

Value Effect Analysis: Omit negative BE/ME companies or how to classify them?

I hope this question is allowed here, otherwise please delete it. Currently I'm working on a historic analysis of the value investment strategy. The foundation of this work is to classify the ...
1
vote
1answer
129 views

Barrier Option under Jump Diffusion

I am trying to price a Barrier Option under a model with jumps. I am using a brownian bridge approach but struggle with the jumps around these bridges and don't know how to handle this. My main ...
0
votes
0answers
18 views

Error distribution algorithms in performance attribution

Are there any known & generally accepted methods of scaling each return in a period such that the total cumulative return equals a more desired amount? For example, 0.5 and 0.3 have a total ...
0
votes
0answers
14 views

Modern Linking Algorithm for Multi Period Performance Attribution

I'm looking for a modern description of the linking algorithms used in industry arithmetic performance attribution across multiple periods. Since the sum of the active return components in arithmetic ...
0
votes
2answers
140 views

Is it possible to measure the impact of financial news on stock prices?

Having a set of news articles (or press releases) about a company (including timestamps of publication) and a time-series of the related company's stock price (at a rather high-resolution, like 1-...
1
vote
1answer
53 views

Why no median-CVaR optimization for portfolios?

Question Since CVaR is a concept that can be applied to all probability distribution, even if they do not follow normal distribution, I thought CVaR should be more concerned with median, not the ...
0
votes
1answer
28 views

How currency swap works for big companies bond and cash management

Suppose a big company A holds 10 Million USD at T+0, and A knows that it will pay 9.9 Million CHF to buy a bond at T+1, why would company A be willing to enter a currency swap to buy CHF and sell USD ...
0
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0answers
71 views

cashflow for floorlet option on 1 month Libor under Vasicek

I have to figure out the cashflow for a floorlet option written on 1 month Libor under Vasicek model by considering yield curve power series expression and bond pricing equation: Has anyone an idea ...
1
vote
1answer
50 views

How do weights of a Mean-Variance optimized portfolio change as the Covariance matrix of the risky assets change?

I am learning a bit more about CAPM, and wanted to know if there was a specific way that weightings of assets in the optimal mean-variance portfolio changed (for constant risk aversion, expected ...
2
votes
0answers
39 views

Reproduce CDS Index Default Probability via Tranche [0,100] Probability

The tranche survival probability up to time $t$ between attachment $K_1$ and detachment $K_2$ is defined as $$Q(t,K_1,K_2) \quad=\quad 1 - \mathbb{E}[L(t,K_1,K_2)]$$ with tranche loss function $$L(...
1
vote
2answers
85 views

when we sell someone buys, why the price changes then [closed]

I have a silly question: if I buy stocks then someone sells it and vice versa. But then why does the price changes?
2
votes
0answers
55 views

Kirk's formula when strike is negative

Does anyone have experience with pricing spread options with potentially negative strike using Kirk's approximation? I always see Kirk's price approximation used for positive strikes, but as far as I ...
0
votes
1answer
46 views

Floating Loan Valuation and Par Value

Why is it true that the value of a floating rate loan is equal to its par value at payment dates? How can one show this mathematically? I want to understand this both conceptually and mathematically.
5
votes
3answers
417 views

Uncertain volatility

Recently, I have encountered something called "uncertain volatility". Is it a popular concept in QF? Do practitioners use it nowadays? What are its pros and cons compared to e.g more familiar ...
1
vote
0answers
55 views

discount factor, zero rates, zero curve from BBG

How can I calculate the discount factor for row 1? I would do $$ \frac{1}{(1+ 2.13763/100)^{(90/360)}} = 0.994726197703956 $$ My ultimate goal is to reproduce the Zero Rates. Any hints welcome. ...
1
vote
1answer
98 views

Local volatility and Stochastic Volatility

Please help me understand similarity and differences between local volatility and Stochastic Volatility both intuitively and mathematically.
0
votes
1answer
138 views

INTERPRETING PCA ANALYSIS

I am having little trouble figuring our which variables are the most important when I am using PCA . What I am trying to do is see which variables explain the most variance when it comes to stock ...
3
votes
2answers
6k views

Proof of Hamada's Formula (Relationship between levered and unlevered beta)

Hamada's formula is presented as follows: $$\beta_{U}=\left[\frac{1}{1+\frac{D}{E}(1-\tau)}\right]\beta_{L},$$ where $\beta_{U}$ and $\beta_{L}$ are the unlevered and levered betas of a firm ...
1
vote
2answers
160 views

Why do big financial groups use fx swaps to manage cash?

Can someone help me with the logic that big companies' treasury department uses fx swap to manage their cash? An example would be much appreciated!
-3
votes
0answers
67 views

Integrals with respect to Brownian motion

I have two questions: Let $(B_t)$ be a Brownian motion. Find all constants $a$ and $b$ such that $X_t =\int_a^t (a +b\frac{u}{t}) \mathrm{d}B_u$ is also a Brownian motion. Find all constants $a$, $b$...
1
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0answers
50 views

One periodic binomial model

I need to look into a one-period Binomial model $(B_t, S_t)$ with interest rate $r = 0.1$ , $S_0 = 100$ and $$ S_t= 120 \, \text{with probability}\, 0.5 $$ $$ S_t= 60\, \text{with probability}\, 0.5 $$...
1
vote
1answer
80 views

Estimation of LIBOR 3M periods if the period is not exactly 3M months

When generating dates of interest rate swaps, even without stub periods, we sometimes end up with periods that are less than 3 months (say 87 day). In that case do we have to apply any kind of ...
3
votes
2answers
500 views

Finding price of the power option

Let's assume a market with $d=1$ and $X=X^1$ satisfying $dX_t=\sigma X_t\,dW_t,\: \: X_0=1,$ where $(W_t)$ is a standard Brownian motion. Assume that $\mathbb{F}$ is the natural filtration of $X$ ...
4
votes
0answers
168 views

The error term of Hagan's approximation of Black's vol in SABR

Hagans approximation of Black's implied vol in SABR is very! difficult to understand fully. But I want to ask in here if anyone can tell me more about the error term. Consider the paper: http://web....
4
votes
1answer
121 views

Futures short interests vs open interests

I came across this article talking about "short interests" in VIX futures. My question is what does "short interest" even mean here? My understanding is that the futures are not "issued" (opposite ...

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