All Questions

Filter by
Sorted by
Tagged with
1
vote
1answer
51 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
56 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
48 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
422 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
139 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
163 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
68 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
vote
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
81 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
503 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
169 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
122 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 ...
4
votes
1answer
339 views

Calibration of Cox-Ingersoll-Ross process that hits zero (Feller condition violation)

I'm considering a Cox-Ingersoll-Ross (CIR) process $$ dx_{t} = \alpha\left(\theta - x_{t}\right)dt + \sigma \sqrt{x_{t}}\,dW_{t}\,,\qquad \alpha,\beta,\sigma > 0 $$ which by assumption has $2\...
0
votes
0answers
36 views

Binomial Model - completeness in presence of arbitrage

Consider a uniperiodal binomial model where I buy one bond of value $B_0$ and rate $r=0.1$, and $h$ stocks with price $S_0=5$. The value of the portfolio at time $t=0$ is $$ V_0 = B_0 + hS_0, $$ ...
0
votes
1answer
58 views

Counterparty exposure for a swap [closed]

What is the exact details of swap option whose PV gives the counterparty exposure at horizon of t=15months for a payer swap of strike 1% above ATM and length 5y starting at 2y?
1
vote
0answers
33 views

Calibrate an HJM model in a multicurve setup

I am a mathematician and I'm working on my thesis on Financial Mathematics. I studied this model HJM in a multicurve setup: $$ \begin{cases} df(t,T)=a(t,T)dt+\sigma(t,T)dW_t & (\mbox{rik-free})\...
2
votes
0answers
65 views

How to backtest algorithms in parallel?

I want to backtest a large number of algorithms on the same dataset, one stock ticker. The algorithms are actually variations of one algorithm with various combinations of parameters, amounting to ...
0
votes
0answers
51 views

Excel formula for Laplace distribution

I am trying to create a forecast model, projecting the number of passengers through an airport over a period of time (daily, weekly, and monthly). I've already used Excel's FORECAST and POISSON ...
0
votes
0answers
38 views

Bloomberg - retrieving historical index values

I am looking at a Bloomberg index which goes out into the future (i.e. a mix of past realizations and future projections) - WNDFTTDE Index (Past and future wind capacity in Germany). While this ...
2
votes
1answer
80 views

Fair Strike for Variance Swap with no Skew in IV Surface

I am reading through Derman's 1999 research notes, "More than you ever wanted to know about Volatility Swaps." In equation B4 of Appendix B, the author takes the Taylor Series of the variance swap ...
2
votes
4answers
507 views

Is exposure at default the same thing as the limit amount on a loan?

In Credit Risk terminology, is the Exposure at Default(EAD) the same thing as the total Credit LIMIT amount on the Loan? Because if Bank gives a loan with a limit of 10,000$ and the borrower has a ...
1
vote
1answer
32 views

Stressing liquidity (time to liquidate) of a long only equity fund using participation rate or bid ask

My company is looking to launch a new long only global equity fund. The product committee wishes to see a risk analysis covering various risks, including liquidity. The main measure is time to ...
1
vote
0answers
73 views

How to correctly simulate volatility shocks?

I am working on the comparison of different volatility timing/target strategies on portfolios starting from different conditions (data, asset classes, calculation of realized volatility, different ...
1
vote
0answers
63 views

Why is R^2 negative on random data? [closed]

The introductory book says R^2 is between 0 and 1, but I have two randomly generated sequences and the R^2 is negative. So I read further and now understand the negative value is because R^2 ...
4
votes
1answer
103 views

How do we calcualte $E[W_sW_t|W_s]$

$W_t$ is a Brownian motion. How do we calculate this expectation? there are two cases: $s < t$ $t < s$ Do we have to distinguish the two cases or there is a unified way of calculating it
1
vote
2answers
60 views

Equivalent Martingale (/Risk Neutral) Measure Conditions

I am trying to understand EMM's and wanted to understand why we use EMM's over just martingale measures. The way we define EMM's is (for a simple one period model): Given a probability measure $\...
5
votes
1answer
294 views

How to determine the risk-neutral measure in a Heston model?

To clarify, I'm quite familiar with the risk-neutral pricing framework, and I know one can efficiently Monte-Carlo a Heston model via the non-central $\chi^2$ distribution approach. But so far we're ...
5
votes
0answers
380 views

Calculating dealer gamma imbalance/exposure for an options strip

Have seen this being done for years (primarily by J.P. Morgan and a couple other bank research desks) and am attempting to re-create for my own personal research. I’ve read the forums on here but no ...
1
vote
0answers
59 views

Annualizing Sharpe Ratio using small time frames

I have coded a strategy that works 5m time frame. I know you multiply it by 252 but i am using 5m or sometimes 1h time frame. Which number do i have to chose to multiply? There are 72576 five minutes ...
3
votes
1answer
186 views

Probability Density Function of a Wiener Process Minimum

Let $W_t$ be a standard Wiener process. Find the probability density function of $m_T = min_{t\in [0,T ]}W_t$. I know that it is based of the concept of the reflection principle, but I wasn't too ...
2
votes
1answer
74 views

Computing T-Bill Yield across leap year boundary

Consider this T-Bill (912796TE9) that was purchased on 2019-10-30 and matures on 2020-02-06: I'm trying to work through some of the basics of the yield calculation. The days until maturity is 99. (<...
2
votes
0answers
50 views

what numeraire is used to price an FX forward contract

By non-arbitrage, it is easy to show the relationship between fx forward and fx spot via the domestic and foreign currency interest rates. I am wondering how we can express this in terms of the ...
1
vote
2answers
157 views

Calculating spot rates from forward rates

I am working on a problem where I am trying to calculate the forward rates from two different spot rates. I have the following: ...
6
votes
3answers
315 views

Is there a way to figure out “hot” strategies?

Apparently, short vol strategies have gotten crowded, according to the recent Bloomberg piece. When I read this, I thought how about factor based strategies -- value, growth, etc.? Aren't they ...
6
votes
4answers
7k views

Local volatility surface corresponding to the implied volatility surface

In Derman/Kani/Zou paper about local vol they rebuilt a local vol surface from an implied vol surface. Each implied volatility depicted in the surface of the "implied Vol" is the Black-Scholes implied ...
2
votes
1answer
115 views

Efficient frontier using Post Modern Portfolio theory

I have been trying to find a way to create the efficient frontier using Post Modern Portfolio Theory (PMPT), but have failed to come across a source that mentions how to do so. I know PMPT uses ...
0
votes
1answer
56 views

IRR for multiple series of cash flows

I have a question on how to calculate a single IRR for a group of projects that have different start dates, but have been sold on the same date. This causes the aggregate cash flows to go from ...
0
votes
3answers
149 views

Is EONIA swap rate really credit risk free?

I have a question linked to the EURIBOR – EONIA spread (or OIS LIBOR spread). I understand that the EURIBOR - EONIA spread is a credit risk indicator of the interbank market. There is something I ...
3
votes
1answer
99 views

Want to understand the links and relationship between all the risk metrics?

For Example : if Risk weighted asset (RWA) increased or decreased this month, which other risk metrics could have influenced RWA to increase or decrease. Also in different situations like, upward ...
2
votes
1answer
56 views

Connections between logistic regression, information value and Kullback-Leibler

I am new to credit risk modeling, my background is in mathematics and physics, so I am looking to justify some commonly used techniques from first principles. Suppose that we are interested in ...
1
vote
0answers
26 views

Option Bounds in a risk-averse incomplete market

I was reading the article "On option pricing bounds" by Ritchken(1985). It uses linear programming to determine options upper and lower bounds. Given a single period model, the stock price will have ...
1
vote
0answers
48 views

Another ZCB calculation

I am not getting the $f(t,t)dt$ term in the last equality when we have $df(t,T)=\alpha(t,T) dt +\sigma(t,T) dW$ and $f(0,t)=f^{*}(0,T)$. Instead I have an additional $\int_{t}^{T}f(0,u)du$ in the ...
2
votes
2answers
532 views

Hull White help needed

I've been trying to calibrate Hull-White 1 Factor & 2 Factor model using Caps but I've some major doubts about my methodology, and would really appreciate some help. I am using these formulas ...
1
vote
0answers
34 views

Are there any known text analysis NLP bots that read 8k filings, news, twits, articles - “understand” them and trade based on their derived meaning?

I want to build an NLP bot that "reads" and understands meaning and sentiment of articles, twits and trades on them. E.g. understand general sentiment of comments under important financial blog posts ...
1
vote
0answers
43 views

Dollar bars in Advances in Financial Machine Learning book

Does anyone have use the dollar bars for building a strategy? I would like to know what ways you guys might be interested to set the dollar bars' parameter ( the dollar value ). I have thought of one ...

15 30 50 per page