# 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 ...
2k views

### Forward implied volatility

Can one price accurately by only using vanilla options a derivative that is exposed/sensitive mainly to the forward volatility ? If it is impossible, why do we hear sometimes "being long a long ...
35 views

Let $P(t,T)=\mathbb{E}_{Q_{R}}[e^{\int^{T}_{t}r(u)du}|\mathcal{F}_{t}]$ be the price of a 1-euro zero-coupon bond with maturity $T$ and $r(u)$ the interest rate process. Consider the the forward rate $... 17answers 17k views ### Video lectures and presentations on quantitative finance What are your favourite video lectures, presentations and talks available online? A few rules: Must be related to quantitative finance. No Economics 101 courses, please. Try to avoid DIY lectures ... 0answers 15 views ### Does EFP (Exchange Futures for Physical) Involves Cash Exchange? I am new to the concept of Exchange Futures for Physical (EFP). According to some sources (link), An Exchange for Physical (EFP) is a transaction involving the simultaneous exchange between two ... 1answer 53 views ### How to comprehend this notation? I learned mathematical finance from Bjork's Arbitrage Theory in Continous Time, and never once did I encounter the "quadratic variation"-thingy with the angle brackets. So now that I am reading ... 1answer 22 views ### Is the undiscounted value process of a Euro call option under Bachelier model a Martingale? Assume that$c_t$is the UNDISCOUNTED price process for a European call option in Bachelier model. In Bachelier model call option pricing formula the formulas is discussed. The undiscounted value ... 3answers 4k views ### Why is the value of debt modeled as a short put option in Merton's model? Can someone give me an intuitive understanding of why the Merton model models the value of the debt from the lender's point of view as a short put with a risk free bond? I'm not well versed in this ... 0answers 33 views ### transactions costs and leland modified volatility When there are transactions costs, we are in a situation of incomplete market. What does the modified volatility of Leland (Option Pricing and Replication with Transactions Costs, 1985) bring us? can ... 0answers 29 views ### Fixed Income Portfolio Optimization I'm trying to solve for a maximum sharpe ratio portfolio in the fixed income space. To do so, i use CVXPY in python. I use this Paper as reference. This is my "setup": ... 1answer 84 views ### Calculation of Combined IRR How to calculate combined IRR for two different cost of funds? The emi (Equated Monthly Installment) amount, whether it is calculated separately or based on the combined IRR should be same. I tried ... 2answers 177 views ### Understanding Forex Positions I am new to forex trading and using an Oanda free practice account to play with it. However, I'm not understanding a few things. When I buy or sell a currency pair, am I buying/selling a currency or ... 0answers 23 views ### Mean directional accuracy and zero I'm trying to use mean directional accuracy to evaluate my directional predictions in back-test, but it can't deal with realised directions which are 0, due to the comparison of the signs of ... 0answers 20 views ### Calculating management fees paid during the last 12 months I'm looking for a way to calculate the total management fees paid by a customer during the last 12-months. I'm taking the following assumptions: The total accumulation as of today is A The monthly ... 2answers 82 views ### Where can I get the actual info about how many stocks are there in markets all over the world? I need to test an algorithm for large-scale data in stocks market. I wanna know how many stocks are there all over the world and the data source. 0answers 17 views ### Units of measurement for Minimum Variance Hedge Ratio The minimum variance hedge ratio is given by$h=p*\frac{\sigma_S}{\sigma_F}$. I was wondering if you wanted to calculate the S.D yourself and the spot prices were in Dollars per barrel while futures ... 1answer 9k views ### What is the equation for Garman-Klass volatility? I want to calculate realized/historical volatility for the underlying products of various options using the Garman-Klass estimator, but I can't see to find an equation, although I know it involves ... 0answers 42 views ### Newbie question on Net Present Value with Constant Growth Newbie here, trying wrap my head around on why this doesn't add up: Calculating the discounted cash flow of a perpetuity paying$1000 per year, 15% discount rate and 5% growth. If I calculate from ...

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