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1answer
31 views

In search of double barrier out option on a BM

We have a BM $X_t$ with $dX_t=\sigma dB_t$ ($X_0$ not necessarily zero!) under the risk neutral measure $\Bbb Q$. Given upper barrier $U$, lower barrier $L$, "strike" $K$ such that $L<X_0<U, L&...
24
votes
3answers
3k views

Tools in R for estimating time-varying copulas?

Are there libraries in R for estimating time-varying joint distributions via copulas? Hedibert Lopes has an excellent paper on the topic here. I know there is an existing packaged called copula but ...
0
votes
0answers
11 views

Does someone share the code about the time-varying copula?

Are there libraries in R for estimating time-varying joint distributions via copulas? Does someone share the code about the time-varying copula?
12
votes
4answers
1k views

Why is Markowitz portfolio optimisation so popular considering it is worse than an equal weighted portfolio?

The original paper by Markowitz from the '60s has ~20,000 citations (definitely popular). However several papers I came across show that a $\frac{1}{n}$ asset allocation gives higher Sharpe ratios (...
0
votes
1answer
49 views

What are quant trading competitions besides IQC?

I am interested to participate quantitative trading competitions. I am residing in Singapore. The only quant trading competitions that I know are International Quant Championship (IQC) and SMU ...
1
vote
1answer
86 views

Why does it make sense to delta hedge a deep OTM option given the very low delta exposure? [closed]

I am not sure if this is actually done in practice as I'm not a derivatives trader, but I can only think of reducing the cost of the OTM option as a reason for delta hedging a deep OTM option, which ...
0
votes
2answers
103 views

Model calibration volatility surface

Let's say i have an exotic structure that is to be vega hedged dynamically. I choose to price it with a local volatility (which means the model prices in your future vega hedges using all options for ...
7
votes
4answers
5k views

Markowitz mean-variance optimization as “error maximization”

I hear it said a lot that standard MV optimization "maximizes errors". But I can't find a good explanation for what exactly they mean by this "maximization" of estimation error. I understand that if ...
0
votes
0answers
51 views

Why does it make sense to be long deep OTM calls on a stock if I expect the share price to jump in the near term?

This may be a simple question to all, however, it is puzzling me for the simple reason that deep OTM calls have very small deltas per the BSM. That is, even if the share price jumps (e.g. IBM moves ...
0
votes
1answer
112 views

Squared returns and volatility

Squared returns are considered pillars of GARCH/ARCH modelling and most used method for forecasting or studying volatility. Can you tell me how to calculate it from simple stock price. Is it better ...
0
votes
0answers
37 views

Possible to have different collateral for each party?

Normally bilateral credit support annexes would have both parties post/receive the same collateral be it US treasuries or cash etc. Are there CSAs Where each party has a different set of eligible ...
2
votes
2answers
934 views

Portfolio Management in R

I’ve been looking around for a R-package that will allow me to track my stock portfolio - basically I would like to enter stocks that I own, track the trades I make, calculate my open position & ...
0
votes
1answer
42 views

Volatility Skew Theory

This is the case for equity options, however for foreign exchange options the volatility only decreased at ATM. Why is it that the vol used for one type of out/in the money is higher than the other, ...
0
votes
0answers
40 views

What discount rate should I use in domestic/foreign context?

I am trying to price a quanto option by monte carlo simulation via quanto adjustment. SDE: $dS_t^f=S_t^f(r_f - \rho \sigma_s \sigma_{d/f})dt + S_t^f\sigma_s dW_t^d$, where $S_t^f$ is the underlying ...
1
vote
0answers
27 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 ...
23
votes
8answers
25k views

Central Index Key (CIK) of all traded stocks

Is there a way by which I can get a list of CIK of all registered stocks at the SEC?
1
vote
1answer
78 views

Constructing an FX forward curve

A lot of our clients are currently using interest rate parity as a means of constructing an FX forward curve. For instance, to construct the USD-GBP FX Forward curve, they are using the USD LIBOR, ...
0
votes
0answers
35 views

How to derive portfolio weights from risk budget

Goal: I'm trying to frame target volatility investments given some view on what asset to overweight. For example, starting with a risk-parity allocation, tweak the marginal risk contribution of each ...
1
vote
1answer
48 views

Is it possible to transform arithmetic-average strike continuous sampling Asian Black-Scholes equation to a heat equation?

By Transformation from the Black-Scholes differential equation to the diffusion equation - and back, we are able to transform vanilla European option into a heat equation. And we know that the ...
0
votes
0answers
60 views

Has anyone _verifiably_ duplicated Yahoo's real time technical market indicators _numbers_? If so, how?

After spending the better part of a week trying to get a combination of Alpaca's API and Python libraries (alpaca_trade_api, pandas and ta) to duplicate the numbers produced by Yahoo! Finance's ...
1
vote
4answers
130 views

If historical returns are no indication of future returns, why are they still shown to investors?

Stock returns and fund returns are on average not autocorrelated and thus unpredictable. Consequently, looking at a historical price chart gives no indication in which direction tomorrows price will ...
0
votes
0answers
36 views

Deriving the series for federal funds rate expectations using federal funds futures

I am trying to derive the monthly series from 2000-2019 of the expectations of federal funds rate based on federal funds futures. How should I proceed? Where to look? Is it possible?
1
vote
1answer
61 views

How can the forward risk neutral measure be used to derive Black's model?

In the Hull textbook's derivation of Black's model (Section 27.6), they apply equation (27.20), which is $f_0 = P(0,T)E_T(f_T)$, where $P(0,T)$ is the value of a zero coupon bond at time $0$ expiring ...
0
votes
0answers
24 views

Is there an analytic form of the modal point of a multivariate lognormal random variable? [migrated]

Is there an analytic form of the modal point of a multivariate log-normal random variable? $Y$ is said to be a log-normal multivariate of dimension $d$ if $(ln Y_1,...,ln Y_d)$ is normal multivariate ...
4
votes
2answers
293 views

Cointegration and Ratio Pair Trading

I'm having some confusion doing Engle-Granger Cointegration test and then trade the ratio. Methodology: Run an OLS fit for A and B price time series without a constant. Therefore, $\hat{Y} = \gamma \...
0
votes
1answer
51 views

Average portfolio correlation vs. external metric

I am coming across a problem I can't seem to wrap my head around, and I am not sure I am using the right words so cannot find much info in it! I have a portfolio of assets, with data on historical ...
0
votes
0answers
45 views

Most efficient way to find Option IV using binomial/BS model

I have a python script set up to run a loop to plug in different values for IV into the binomial model to get an option price as close as possible to the market price. My issue is that at the moment ...
1
vote
0answers
53 views

Measuring corporate size relative to world GDP

I'm working o a model where corporate revenue / world GDP is a dependent variable of some stuff (based on the model proposed in this paper: http://www.scielo.br/scielo.php?pid=S1807-76922009000200002&...
0
votes
1answer
73 views

analytical formula for FV of fixed rate of a IRS [on hold]

IRS plain vanilla - expiry in 5 years - principal is 1$ - semianual payment How could the analytical formula be derived for the fair value of the fixed rate (initially no value of the swap)?
0
votes
0answers
49 views

Vega for Constant Maturity Swaps

Why does a Constant Maturity Swap have a positive vega? Is it because of the convexity? How does one hedge it?
0
votes
1answer
94 views

Simulated Sharpe Ratio Calculation for Leveraged Portfolio

I've written some VBA code to simulate the effect of borrowing money, investing it, and repaying the loan daily. PseduoCode: Start with a portfolio value of P = 1 Each day borrow P, invest 2*P, ...
4
votes
1answer
71 views

Simulating from a multivariate clayton copula

I am recently into copulas for finance, I've read several examples of how to generate dependent random variables with most kind of copulas. The problem for me is that all the books describe the case ...
2
votes
0answers
62 views

What is the recipe for deriving a PDE for the price of an option?

In the Black Scholes setting, here is how my understanding is of how we derive the PDE for the value of an option. We assume that the price of the option is Markovian in our state variable $S_t$. ...
0
votes
0answers
30 views

Is this the right way to compute "realized daily market return variance, annualized, over the preceding 126 trading days”?

Realized.Variance<-rollapply((log(Fama.French.daily$Mkt+1)^2) ,126,sum,by=1) So Fama.French.dail$Mkt is my daily Market return. To calculate the realized ...
0
votes
1answer
77 views

Barrier option on a basket with arbitrary stochastic process

Suppose I want to price a Down-and-out European call, barrier option. However, the stochastic process is not a gBm or any other Levy process with known structure. Practically, I want a barrier option ...
1
vote
1answer
28 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....
0
votes
1answer
26 views

Leverage and Tracking difference

I am a little confused. I have calculated the tracking difference of an Index and a n ETF using the return getting 0,4% tracking difference per year. I have then leveraged both, the Index and the ETF ...
0
votes
1answer
44 views

Testing the significance of active trading strategies other than stocks

In active asset management industry, a common approach to Test whether my Strategy Provides significant alpha is to Regress Portfolio Returns on Fama French 3 (or 5 factors) and check whether the ...
2
votes
1answer
156 views

What's the point of stochastic volatiliy models if you can use local volatility? [duplicate]

Given known call option prices, there is a unique local volatility function consistent with those prices. So why use stochastic volatility models? We can use the market to find local volatility, and ...
0
votes
0answers
41 views

Sharpe Ratio and interest rate

The Sharpe ratio is calculated as the ratio between the return and the volatility. Now, when I have a trading strategy that requires to be invested sometimes and to be flat other times, I assume 0% ...
1
vote
1answer
8k views

Margin % Bridge - Effect of Price, Cost, Volume

Given sales and profitability data for two time periods, how would I go about calculating the impact of price, cost, volume and mix margin % (bps)? I can do the analysis as a gross margin $ bridge, ...
0
votes
0answers
37 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 ...
0
votes
0answers
53 views

Cross Effect in OLS

I am using cross effect in OLS regression for a time series problem for a multivariate regression. I want to quote reference for use of cross effect. Secondly, I want to explain why better to use ...
2
votes
0answers
119 views

How to calculate the Metropolitan Transportation Authority of New York's market capitalization or fair market value? [closed]

ok, so I can't post more than 1 link since I'm a noobie noob, and in the course of correcting this, Stack managed to delete my post. so here's the more abbreviated, slightly irritated author version… ...
0
votes
0answers
14 views

Where can I find historical compos for STOXX?

It's easy to find current members for STOXX, but night impossible to find the historical adds and deletes. Are there any sources for this data? Scarping/manual works is ok.
1
vote
1answer
60 views

Treasury Futures Basis Trade - Funding enhancement

In a basis trade, if you short the Treasury futures and buy the underlying bond and hold it to maturity, is funding the only source of risk assuming there no CTD switches. You have locked in the ...
2
votes
2answers
138 views

Definition of an European Option

I'm a bit confused after reading an article from Henry-Labordere. He was giving an example of an European option whose payoff may depend on the whole path of the underlying : $f(S_{T_1}, S_{T_2}, ...,...
1
vote
0answers
36 views

Credit spread model

Let $c(t,T):=-\frac{1}{T-t}[\mathrm{ln}(P_1(t,T))-\mathrm{ln}(P_0(t,T))]$, with: $c$ measure of how a company is prone to fail; $P_0(t,T):=e^{-r(T-t)}$ price of no-defaultable bond. $P_1(t,T):=\...
7
votes
3answers
5k views

How to calculate the JdK RS-Ratio

Anyone have a clue how to calculate the JdK RS-Ratio? Let's say I want to compare the Relative strength for these: EWA iShares MSCI Australia Index Fund EWC iShares MSCI Canada Index Fund EWD ...

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