# All Questions

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143 views

### FX Option Pricing Under Basis Adjustment

Given money market rates such as USD LIBOR and EURIBOR and in the context of FX options valuation, I have been reading about the importance to include a so called basis adjustment to one of the ...
936 views

### Parametric/Analytical VaR

Suppose I want to calculate VaR for a known distribution with mean $\mu$, variance $\sigma^2$ and $\alpha$-quantile as, $VaR_{\alpha}$ = $\mu + \sigma q_{\alpha}$. For a Gaussian distribution it is ...
133 views

### Possible to use diffusion equation(s) to price derivatives with non-zero boundary conditions?

One of the reason the Black-Scholes can be transformed into the heat equation is that calls and puts have a zero boundary condition on their contingent payoffs. Define the terminal payoff condition ...
217 views

### Valuation of FX vs. Commodities Barrier Options

With reference to my previous question about the computation of a barrier option delta, @LocalVolatility referenced a nice closed form solution to value barrier options on a stock paying a dividend ...
63 views

### Why does a higher stock value imply a higher call option value [closed]

This may seem like a very dumb question, but if the underlying stock price is greater, then why should a call option be worth more. My reasoning is that, if the option price is not affected by the ...
63 views

### Compute the (Net) Present Value

Let's have a project where we invest 1000 at the beginning of year 1 and 1000 at the beginning of year 2. At the end of year 2 the income is 2200 and the project is closed. Person A discounted with ...
2k views

### How can I calculate Fama-French Beta, RMW and CMA factor for a particular stock?

I already have a method of calculating Size: the natural logarithm of the market value of equity at the end of the fiscal year. But how to account for the Market Risk Premium, RMW, CMA and MOM ...
142 views

### Calculating units in a cross currency short trade

If I have a forex account with a broker and a balance of 100 USD, and I'd like to short EUR/JPY, how many units can I short? How is this calculated? Which currency pair do I use to translate between ...
942 views

### PCA on term structure of interest rates

Interest rate time series seems to be non-stationary whenever test is performed But covariance or correlation matrix is derived from term structure time series which are non stationary and later PCA ...
933 views

### FX Option pricing on Forward vs. Spot

In a GBM world with riskless domestic and foreign interest rates, what would be the correct model for a FX plain vanilla option given the statement that this option is priced on the forward? I guess ...
1k views

### What’s the derivative of the sharpe ratio for one asset? Trying to optimize on it for a model

It seems most Sharpe ratio derivations seem to be for portfolios but I am just tracking a single asset? $SR = (r_p - r_f) / \sigma_p$ but what would I derive with respect to for an optimization/ ...
914 views

### Getting the next price of a GBM (Geometric Brownian Motion)

I am writing a program that creates realizations of a GBM. Starting from an initial price, I get the following price with this formula: ...
315 views

### Momentum strategy cumulation of K-monthly returns over multiple months [duplicate]

In a momentum strategy, every month you form a portfolio of winners. Each of these portfolio you hold for K months. So after K months you sell the 1st portfolio, after K+1 months you sell the next and ...
124 views

### Does the price of an asset need to be constant in order for its volatility to be zero? [closed]

What are the conditions for the volatility of an asset to be zero? In my opinion, the only condition is that the return on the asset needs to be constant. On the web, some people imply that the ...
1k views

### Calculating arbitrage- S&P 500 stocks vs S&P 500 Index future?

How exactly would I go about investigating whether the S&P 500 stocks were currently over-valued compared with the price of the S&P 500 Index futures contract? Is it just a case of taking each ...
102 views

### Separate market and limit orders from market depth/tick data

From the website https://www.algoseek.com/equities/, we can get a sample of the full depth market/tick data. From the paper https://arxiv.org/pdf/1710.03870.pdf page 8, I would like to extract the ...
126 views

### What is the connection between the federal funds rate and US government bonds

If the Federal Funds Rate changes, does that affect bond prices? How? Also, is there any connection between the Federal Funds Rate and the coupon payment on US bonds?(for those that have a coupon ...
384 views

### If I am very fast (less than 10 microseconds latency) what would be the first strategy to execute? [closed]

Let's assume I found the holy grail of low-latency trading (which I didn't). For educational purposes, what would be the first strategy I would direct my trading code?
2k views

### Given $S$ is a Geometric Brownian Motion, how to show that $S^n$ is also a Geometric Brownian Motion?

Suppose that a stock price $S$ follows Geometric Brownian Motion with expected return $\mu$ and volatility $\sigma:$ $$dS = \mu S dt +\sigma S dz$$ How to find out the process followed by variable \$...
251 views

### Accuracy for GARCH models

How does one calculate the accuracy of forecasts given by GARCH models considering GARCH is run on returns. Assuming GARCH is a derivative of a regression based prediction model, would regular ...