All Questions

12,632 questions
633 views

What mathematical theory is required for high frequency trading?

I am an applied math postdoc and I have been presented with the option of leaving academia to work in high frequency trading. I wanted to get a feel for the field and the theory underlying it so I ...
4 views

How frequently is local volatility calibrated to implied vol surface, in practice?

This has two related questions - How frequently do equity derivative traders re-mark the implied volatility surface - (i) once a day (e.g. at start of trading day, or end-of-day), or (ii) ...
6 views

How to add annualized quarterly returns?

I have four quarterly returns that have all been annualized. How do I calculate the annualized return for the year from these values? Or do I need to back into them to get the holding period returns
21 views

American Put Option Pricing

I am trying to solve a question of American Put Option pricing as below. Build a 15-period binomial model whose parameters should be calibrated to a Black-Scholes geometric Brownian motion model with:...
18 views

Pseudo-math in famous quant finance book. How do I interpret this?

I am reading Jim Gatheral's The Volatility Surface, and am astounded at some of the math. It's not even math, it's pseudo-math. Please provide an explanation to the following mumbo-jumbo. On page 27,...
71 views

What is the easiest way to learn Option pricing with PDE?

I was reading about Ito's formula and Girsanov theorem, but I am still struggling to grasp how in reality these are combined to compute the price of an option. What are the main source to understand ...
13 views

How would one go about pricing a FX future?

What model/equations would I require to calculate the price for a foreign exchange future? This is in an attempt to mitigate foreign exchange risk. Also, how could one measure a business's exposure to ...
61 views

Understanding the ZABR model (an extension of SABR)

http://janroman.dhis.org/finance/SABR/ZABR%20Andreasen.pdf In this acticle the SABR model is first presented in another form ( see equation 7 in the article ) and then extended to the so called ZABR ...
18 views

high quality daily data [duplicate]

I am analysing some trading strategies, so lots of high quality data is needed. I have been using yahoo finance which provides a lot of high quality daily data on stocks and indices. Currently I am ...
232 views

What are some examples of non-solvable SDE where Monte Carlo discretization is necessary

Reading Glasserman - "Monte Carlo Methods in Finance" it says in the introduction to Chapter 6 - Discretization Methods, that moste models arising in derivatives pricing can be simulated only ...
18 views

50 views

what are the underlying transactions for SOFR?

Recently I am reading about SOFR (Secured Overnight Financing Rate), which is projected to replace LIBOR to be the reference for risk-free rate in the market. But I still don't understand or imagine ...
498 views

Transforming 3M volatilities into 6M volatilities in EUR forecast curves

I have implemented a stripping algorithm to extract forward volatilities from cap/floor flat volatilities for different currencies. I am however struggling a bit when implementing a method to convert ...
37 views

How to calculate necessary gain to compensate a loss in a financial transaction?

(Feel free to suggest the correct Stackexchange community - or otherwise - if this is not the correct one) When trading financial markets, a gain of x%, won't ...
3k views

Pricing a fixed rate bond in Quantlib Python

I'm trying to implement a pricing model for fixed rate bonds with the code below. ...
39 views

Why is the volatility of an Ito process not the square root of its variance?

The volatility $\sigma$ of an Ito process $dS_t = r S_t dt + \sigma S_t dW_t$ is not the square root of its variance. But you often hear that "volatility = standard deviation". What's going on here?...
29 views

Why the variance of a process is $\left( \frac{dS_T^2}{dt}\right)^2$?

Consider an Ito process $dS_t = f(t,S_t) dt + g(t,S_t)dW_t$ What is the reason that we can compute the variance as: $\sqrt{VaR(S_t)} = \frac{(dS_t)^2}{dt}$
37 views

Rationale for likelihood function parameter choice in Black-Litterman model?

So we are interested in a PDF for equilibrium returns given the views. Why do we choose our view means as the mean parameter and observed market covariance as the covariance parameter? Seems a bit ...
75 views

Are questions in Joshi's book really asked at Quant interviews?

I am reading some questions in Joshi's book on Quant Job Interview Questions, and am perplexed at some of the questions in the book. Some of them are extremely easy (like, "explain the Black Scholes ...
14 views

How is hypothesis testing work in population sampiling?

I am learning the basics of quant trading from quantconnect's tutorial Confidence Interval and Hypothesis Testing. I understood the first part of the article but I dont understand "Hypothesis Testing"...
162 views

A volatility model developed by JP Morgan

I am quite confused with this predicting volatility equation: σ2t = βσ2t-1 + (1-β)ε2t Here is a section from Capital Market Expectations: CFA Level 3 Volume 3 Curriculum (page 27) https://ibb.co/...
59 views

Estimating a Yield Curve in a country without Bond Stripping

I am currently working under estimating a Yield Curve. From my understanding common procedures to construct a yield Curve like Nelson Siegel have the input of a series of different zero rates and ...
182 views

Mixing Black Scholes with SABR

I am new to the whole concept of stochastic volatility so I am experimenting with option pricing. I think the concept is really difficult to understand / grasp. I was wondering if the following ...