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1
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0answers
10 views

Pricing Variance Swap

I want to calculate the NPV of a Variance Swap wherein the cash flow happens every months based on the standard Variance formula of the close prices of S&P500 ...
1
vote
0answers
18 views

Multivariate MC: what am I doing wrong?

I am trying to generate multivariate MC results presented in this paper A Simple Generalisation of Kirk’s Approximation for Multi-Asset Spread Options by the Lie-Trotter Operator Splitting Method, by ...
2
votes
0answers
12 views

Estimate of basket volatility

We are looking for a simple way to calculate an approximation of the basket volatility for a set of baskets so that we can estimate which basket might produce the highest coupon in a standard ...
0
votes
2answers
47 views

Clean vs dirty price for bonds

Why the clean price is mostly quoted in the US bond markets and the dirty price is mostly quoted in the European bond markets?
0
votes
1answer
35 views

Option implied distributions

I am having a bit of trouble understanding how to obtain the option implied distributions. I have strike levels, deltas and implied vols for a call option that expires in 6 months. Roughly 40 data ...
1
vote
0answers
13 views

How is the implied risk neutral density affected when changing numeraire?

For example i would like to price \begin{equation*} E^{Q} \left[ e^{-\int_{0}^{T}r_{s}^{cur}ds} f \left( S_{T_f}^{cur_1} \right) | \mathcal{F}_{0} \right] = B_{cur}(0,T)E^{Q^{cur}_{T}}[ f(S_{T_f}^{...
1
vote
1answer
27 views

How are the divisor of SP500 determined?

I read through the definition of S&P 500, there is no clear explanation of the Divisor. I wonder what is it and where can I read more about it?
1
vote
1answer
32 views

How to simulate asset prices/returns that display market regimes?

Are there any techniques that can make a multivariate random number generating process for stock prices/returns, like geometric Brownian motion via Cholesky, also include the simulation of a finite ...
1
vote
0answers
28 views

Changing numeraire in Margrabes formula

Consider a Black Scholes market with constant coefficients, a bond and two risky assets: $$dB_{t}=r B_{t}dt \\ dS_{t}^{i}=S_{t}^{i}(b_{i}dt+\sigma_{i,1}dW_{t}^{1}+\sigma_{i,2}dW_{t}^{2})$$ where $i=1,...
0
votes
0answers
31 views

Optimal Change Point Detection Problem for a timeseries

W. T. Ziemba, S. Lleo and M. V. Zhitlukhin suggested an Exit Model for selling an asset based on Change Point Detection Theory from the field of Statistical Quality Control https://ideas.repec.org/h/...
0
votes
1answer
34 views

FX implied yield

Emerging market currencies like IDR, INR, its fx implied yield generally rise in a stressed environment. While for KRW, fx implied yield usually drops in a stress environment. I would assume KRW ...
0
votes
1answer
19 views

Is there a way to create a custom calendar using a holiday and weekend list in quantlib

We have a data set up that provides us a list of holidays and weekends which is different from the country or currency calendars.Is there any method exposed in Quantlib calendars which expects a list ...
1
vote
2answers
409 views

From Libor Curve rates to “forward” zero-coupons

I am provided a 6M euribor curve, constructed from FRA's and swaps of tenor 6M on the euro, as well an EONIA curve, constructed from zero-coupons EONIA swaps. Both curves are provided as functions $d\...
0
votes
1answer
35 views

How to extrapolate shorter tenor from volatility surface?

Overnight(ON) volatility is the first input of a volatility surface, 1 weeks, 2 weeks and so on... Say I have a volatility surface with ON expiry of 1 day, is there anyway to extrapolate volatility ...
3
votes
4answers
153 views

Price of Call Option with or without jumps

Suppose two assets in the Black Scholes world have the same volatility, but different drifts and that one has downward jumps at random times. How does this affect the option prices? I would have ...
0
votes
0answers
18 views

How to understand broken wing butterfly option strategies?

I feel very confused about the greeks analysis for the broken wing butterfly strategy. Let's say for the stock ABC, we enter into a such strategy: we long a put option with strike $k_1$ and another ...
0
votes
0answers
14 views

Portfolio models that maximize cumulative returns

Portfolio optimization typically looks at minimizing portfolio volatility, or maximizing the portfolio's Sharpe ratio (risk-adjusted return), but are there any recent, reasonable approaches to ...
1
vote
1answer
130 views

Why do cumulative returns have a bimodal distribution?

Regular returns (log-differenced prices) have statistical distributions that are bell-shaped and unimodal (one mode/peak) despite being non-normal and fat-tailed. Cumulative returns, on the other hand,...
0
votes
1answer
137 views

Black Scholes Separable Solutions

I want to find all the solutions of the Black Scholes PDE that are of the form f(x,t)=theta(x) or f(x,t)=phi(t). Can someone explain and help with this? I know the PDE formula is $f_{t}(t, x)=-\...
-5
votes
0answers
29 views

Is Ito's lemma involved in the Jump Diffusion Model by Merton [duplicate]

I know its involved in the black scholes, but what is it's involvement in the jump diffusion SDE.
0
votes
0answers
12 views

Are there noticeable jumps in index options price due to systematic hedging of structured products close to big expiry dates?

I am looking at investigating factors that will cause jumps in index options prices close to big expiries in the name. I imagine systematic rebalancing of structured products will have a large impact ...
0
votes
0answers
17 views

Is there a packages to estimate Diebold-Li Parameters in R?

"The models implemented are: Nelson-Siegel, Diebold-Li and Svensson" is written in the description of the packages "YieldCurve". However, I can't find a specific estimation ...
0
votes
0answers
15 views

Is this a new way to profit from earnings releases using long straddles?

How much can I reasonably make if I buy a long straddle just as soon as earnings release day is announced and ride the rise in implied volatility along with any movements till the earnings release ...
1
vote
1answer
5k views

What are DGTW adjusted returns?

Many papers, e.g. in The Journal of Finance, discuss DGTW adjusted returns (or DGTW abnormal returns) instead of just returns. What are these and how does one compute them?
-4
votes
0answers
21 views

Why Risk neutral pricing [closed]

I just wanted to understand a basic concept: Why do we do the option pricing under risk-neutral measure and not the general P.
0
votes
0answers
29 views

How do trading firms that pay for order flow make money from “arbitrage”?

I understand that retail brokers pass their customers' trades on to trading firms, and receive a payment for order flow in return. These trading firms carry out the trades and presumably also have to ...
2
votes
1answer
31 views

Detect a specified pattern in a target dataset with Python

This question is sort of a continuation of this, but i wanted to share the progress i made and ask for help on the part where i'm stuck. The short story is that i have a pattern stored in a simple ...
4
votes
3answers
958 views

Which is riskier: a call option or the underlying?

From Joshi's Quant Interview Questions and Answers: What is riskier: a call option or the underlying? (Consider a one day time horizon and compute which has bigger Delta as a fraction of value). I ...
0
votes
1answer
48 views

How to obtain one-step ahead forecast in Python based on GARCH?

I am trying to produce one-step ahead forecast using GARCH in Python using a fixed windows method. I ultimately want to put the code below in a for loop, but this code snippet does not perform as I ...
1
vote
2answers
90 views

Compute the price of a derivative which pays $\log(S_T)S_T$ in the Black Scholes world

Compute the price of a derivative which has pays $\log(S_T)S_T$, you can assume that the Black Scholes model is valid. Using the stock measure we can write the expectation as $$D(0) = S_0 \mathbb{E}...
1
vote
0answers
28 views

Some questions to canonical correlations between principle components and asset pricing factors using R

I have done a asympotical principle component analysis (APCA), using eigen() in R, of the covariance matrix of a global dataset of excess returns. I took the ...
1
vote
0answers
47 views

Forex trailing stops - better alternatives?

I've been pursuing the holy grail of trading, short term FX trading, using machine learning. I've experimented with a ton of strategies but mainly those revolving around holding each trade for a ...
0
votes
1answer
48 views

Swaptions vols,object using quantlib xl

How can I build a good vol surface using QuantlibXl? My goal is to price a swaption 5 year with option maturity 1Y1M. The data are:
1
vote
0answers
36 views

Hand coded algorithm for tangent algorithmic differentiation

I'm looking for a way to hand code the algorithm for the forward/tangent mode of algorithmic differentiation to calculate option Greeks with Monte Carlo simulations. The computational power is very ...
4
votes
4answers
331 views

Find a formula for the price of a derivative paying $\max(S_T(S_T-K),0)$

Develop a formula for the price of a derivative paying $$\max(S_T(S_T-K))$$ in the Black Scholes model. Apparently the trick to this question is to compute the expectation under the stock measure. So,...
0
votes
0answers
46 views

Why combination in B&S formula [closed]

Can someone tell me please, in order to calculate the number of paths to get to a certain payoff in B&S we use combinations? For example If there is 3 up move and 7 down moves. To calculate the ...
1
vote
1answer
64 views

Option data analysis

This question is regarding the following tweet: https://twitter.com/yuriymatso/status/1281730109141954561 How was the original tweeter able to know that "Someone made a ...
4
votes
1answer
72 views

How can I calculate bucket vega using dupire local volatility surface?

I am trying to calculate the bucket vega of the portfolio which includes mainly vanilla options and some exotic options. I am pricing the value of portfolio with fdm by using dupire local volatility ...
0
votes
0answers
20 views

Company size, profit and innovation

I am looking for empirical evidence that as companies grow in size, they are more likely to make a profit (economies of scale), but their relative margin actually becomes smaller (or is offset) as ...
1
vote
1answer
66 views

Arbitrage strategy using binomial tree

Suppose that we have a one step binomial tree model for a company. Lets say that the time per step is T, and that price of the stock can go up to $p_1$ or go down to $p_2$. Suppose a T-month European ...
2
votes
0answers
80 views
+50

James-Stein estimator: for superior estimates of returns in m.v. portfolio optimization

I am currently learning about statistical techniques to enhance the estimation of input parameters in a m.v. optimization. Specifically I have some doubts about the James-Stein estimator applied as an ...
2
votes
2answers
131 views

Implicit finite difference method always guarantees positive and stable price of derivative?

For the following black scholes pde $$ f_t + rSf_S+\frac{1}{2}\sigma^2S^2f_{SS} = rf $$ By denoting $f_{i}^{n} = $ Price of derivative at price node $i$ and time node $n$ and assume uniform grid, the ...
5
votes
0answers
42 views

Should I hedge this spread with a spread option or an insurance product?

My firm generates electricity from wind. Accordingly, most of my generation takes place at night, when prices are low -- and, due to congestion / oversupply, often sharply negative -- so much so that ...
-4
votes
0answers
44 views

Does a setup comprised of a Xeon E-2288G and a Quadro RTX 4000 8 GB be enough for backtest and analysis? [closed]

I am about to invest in hardware, and yes I will use AWS eventually, but I thought that I would also need some local hardware as a base. So this is my setup: CPU: Xeon E-2288G GPU: Quadro RTX 4000 8 ...
0
votes
1answer
62 views

What is the meaning that Geometric Brownian motion is leptokurtic? [closed]

Does this have any relation to the symmetry of the normal distribution?
3
votes
1answer
117 views

Cox Ingersoll Ross Model

Hello, I was trying to prove this proposition for CIR model. I am able to follow the proof but then couldn't solve that last ODE. Any help would be great.
0
votes
1answer
223 views

Help evaluating covariance integral when deriving vasiceks model

Im working through a solution to evaluating pricing for Vasiceks model However i dont understand the u∧t terms and how that behaves under the integrals...any help?? Cheers
0
votes
0answers
8 views

A simple question about the dummies of structural variance (ICSS) breaks on GARCH

The question related to How to implement dummy variables into GARCH(1,1) model from structural breaks (ICSS) I have a simple question about that. Suppose my series have two breaks on t=2 and t=5 for ...
4
votes
1answer
95 views

Expected Shortfall monotonicity

I have to show monotonicity for a more general case than the expected shortfall. I have to show that $E(X|X \geq a) \geq E(X|X \geq b), \forall a,b \in \mathbb{R}$ so that $a\geq b$ and $F_X(a-)<1$....
3
votes
2answers
138 views

How to identify market makers in an orderbook?

I am trying to identify markets makers within an (options-)orderbook. Of course, this is far stretched, but I was wondering what kind of characteristics / patterns I should look at. I got the ...

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