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2answers
33 views

Heston Model and antithetic variables

I was implementing some variance reduction techniques for the heston model and came up with a question when implementing the antithetic variable technique. Namely, I was not sure if I had to implement ...
0
votes
0answers
21 views

Can you reduce the amount of VWAP sale by initiating a VWAP buy against it?

Outright cancelling the VWAP sale order and resubmitting a new order would result in a VWAP "price" that is very different from the theoretical VWAP. Could this be used to get a closer VWAP price ...
0
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0answers
22 views

Derivation of affine term structure [closed]

How does one derive Affine Term Structure. Have been searching around without finding anything. Would appreciate guidance. Thank you.
1
vote
1answer
22 views

How to determine the no arbitrage price of following claim? (change of numeraire)

How do I determine the no arbitrage price for claims such as $min(S_1(T),S_2(T))$ or $max(S_1(T),S_2(T))$? We can consider a standard Black Scholes model. Hence $S_i(T)=S_i(t)e^{(r-\sigma_i^2/2)(T-t)+\...
3
votes
1answer
137 views

99.97% Percentile VaR Approximation

I have been working with a group which references a 99.97% 10-day VaR figure. They calculate this value via a 99% 1-day historical simulation over 500 days and then scale it under the assumption of a ...
0
votes
0answers
17 views

Interpretation of $\alpha$ (confidence level) in mean CVaR optimization

How are an investors risk preferences related to $\alpha \in (0,1)$ in a mean CVaR optimization? Would a risk averse investor choose a higher value of $\alpha$, and if so why? My understanding is, ...
-1
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1answer
28 views

Custom normalisation from 0 to 20

I want to normalise from 0 to 20 For example right now I do normalisation with dynamic outlier exclusion , using median. So it works fine for some values like below ...
-1
votes
0answers
25 views

How to Understand the Gambler Ruin Problem [closed]

I'm reading the probability chapter from an interview book called A Practical Guide to Quantitative Finance Interview, and cannot make sense or understand one of the problems called "Gambler Ruin ...
-2
votes
0answers
31 views

How to Compute and Understand Probability [closed]

After leaving school for 6 years, I'm reading the probability chapter from an interview book called A Practical Guide to Quantitative Finance Interview, and cannot make sense or understand how ...
-1
votes
0answers
34 views

Two Probability Questions from Interview Book [closed]

I'm reading an interview book called A Practical Guide to Quantitative Finance Interivew / Chapter 4 Probability Theory. So I ask those following questions (I highlighted my doubts in bold) in this ...
0
votes
1answer
35 views

Does the Heston calibration have to be done on an arbitrage-free surface?

In a similar way to local volatility? I'm trying to calibrate a surface, but the results aren't convincing, so I was wondering if it was necessary to first use a way to regulate it (splines, ...
0
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0answers
39 views

Analytical portfolio optimization for VaR under multivariate normality

Given a set of assets with returns following a multivariate normal distribution with a known mean vector and a known covariance matrix, I want to find optimal portfolio weights that maximize value at ...
1
vote
2answers
49 views

Price American call equal to price European call (non-dividend-paying stock)

Let $\tilde{C}_K(t,T)$ be the value (price) of an American call option at strike $K$ and maturity $T$, and $C_K(t,T)$ the value (price) of a European call option at same parameters. For a non-...
0
votes
1answer
32 views

Swaps curve building with Deposit, FRAs & Swaps

I'm new to curve building with Deposit, FRAs & Swaps, I understand the process the main struggle I've is with day conventions and swap delays,cash delays, pay delays ... it's hard to find a book ...
0
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0answers
26 views

Fama-Macbeth Regression: Weird Risk Premia

I just conducted a Fama-Macbeth regression where in the first step I calculated a time-series regression for each individual stock to get three betas (for mkt-rf, smb, hml) for each stock. Then I ran ...
0
votes
1answer
28 views

Vasicek Model Parameters Estimation

I'm currently trying to estimate the market price of risk (lambda) in the Vasicek Model, and am running into difficulties. Using the Excel Solver tool and the Maximum Likelihood Estimation method ...
1
vote
1answer
35 views

Formula for quantiles of swaprates in the 1-factor Hull-White model

Is there a closed formula to approximate the quantiles of swaprates in the 1-factor Hull White model? Background The Hull-White is a Gaussian model for the short rate. Its mean and covariance ...
0
votes
0answers
23 views

how to find a good ML stock prediction implementation? [closed]

I know there are lots of github repositories about applying ML techniques into stock market prediction. But I can't find the one for my purpose: Suppose I have lots of data sets from stock exchange ...
1
vote
0answers
22 views

In building volatility curve for etf options, should I use synthetic forward price or cash price

Assuming option market moves faster than ETF cash price in intraday high frequency setting. That means at each time point, when implied volatility is calculated by black-schole model by using cash ETF ...
0
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0answers
25 views

Volatility and Variance Swap [closed]

What is the difference between volatility swap and Variance swap? Volatility can be converted into variance and vice-versa. Then why do we need to trade two different product?
0
votes
1answer
13 views

Option symbology with reuters DSWS

I am trying to systematically extract option data at a certain date based on the underlying. Input: interchangeably ISIN/RIC/Mnemonic Output: list of underlying symbols, preferably mnemonics. I am ...
1
vote
1answer
51 views

Should we calculate the implied volatility surface with Put+Call?

We have Sungard data (MarketPlace8), but for nearby maturities the ask-bid of the calls are all the same when we are out of the money (call), so should we calculate the implied volatilities of calls ...
0
votes
1answer
54 views

Determining the No Arbitrage price of max[B(T), S(T)]

Following is given, $dB(t)=rB(t)dt$ $dS(t)= (r-\delta)S(t)dt+\sigma S(t)dW(t)$ where, $r$ is the risk-free interest rate, $\delta$ the continous dividend yield $\sigma$ is the stock asset ...
-6
votes
0answers
42 views

Solution to this problem? [closed]

Details of the question are as follows. Stock 1 : Beta 1.2 , Idiosyncratic risk 0.05 Stock 2 : Beta 0.4, Idiosyncratic risk 0.07 Expected return of market portfolio = 0.13 variance of market ...
0
votes
2answers
69 views

What's a good resource of book for Python programming in relation to quantitative finance?

I know some of base Python, but I have only briefly used numpy, pandas, etc... I was wondering what's a good resource to learn Python specifically for quantitative finance. I know of plenty of books/...
0
votes
0answers
20 views

Adjusting backtest results for number of parameter sets tested

One can test a moving average crossover system that is long the asset when the N-day moving average is above the M-day moving average and short otherwise. If N and M are both allowed to be integers in ...
2
votes
1answer
236 views

Is “risk-neutral probability” a misnomer?

Aside from not being a probability in the common sense (i. e. not concerning the odds of events), as far as I understood it, the "market's attitudes towards risk" are actually factored into / built in ...
5
votes
0answers
89 views

How to use neural network for technical analysis?

I am working on building a Neural network for technical analysis of stocks. The input I have is the open price and two (so far) technical indicators : RSI and William's R - for the past 2 years. I can ...
1
vote
1answer
30 views

Minimum degree of freedom required for Fama french three factor model

I want to run Fama/French three factor model each month on daily returns for each securities as I want to calculate idiosyncratic volatility with the help of residuals. It means there are four ...
0
votes
0answers
8 views

NasDaq/Nyse Option Chain Pre-requisites

Which all Companies are allowed to be traded in the options market? Are there any conditions to allow/disallow a company from trading in the options market? Do we have a list of companies, which are ...
0
votes
1answer
57 views

Dealing with delisting during backtesting

I tried to do simulation as accurate as possible because my life will depend on it. I looked at backtesting results and I found that there were situations that the program bought stocks but it ...
0
votes
0answers
32 views

Exemples and usefullness of martingale betting systems in finance

In a martingale betting system, a player that bet against a fair coin will double its bet if he loses. Following this strategy, the first win would cover all the previous loss and get a profit the ...
1
vote
0answers
33 views

Benchmarking of models

Why do we need benchmarking adjustmenets for a model? Suppose, a trading desk is using Heston model for generating vol surface, then why do risk management uses various other models like IR Mean ...
0
votes
1answer
41 views

How to get know when CUSIP is changed

CUSIP code is not a constant, it could be changed. Does anybody know how to detect a CUSIP change? Is there any report with this info? Where can i find it? Thank you.
1
vote
0answers
39 views

Extreme AUDJPY FX vols

I'm seeing levels of -12% of market strangle vol at 25 delta for AUDJPY at 20Y onward that is causing havoc with my pricing routines, the 10 delta market strangle is trading around -6% which is again ...
0
votes
0answers
22 views

Fama French factors construction

I want to construct FF factors for canadian market. I do this step, 1) for each june of year Y, I sort stocks by ME (price by outstanding stocks) I got a median for each june t and I classify then ...
1
vote
1answer
71 views

How do market makers chose the size that they quote?

A typical quote in the derivatives market may be 2.00 bid at 2.50 ask with a size of say 100x100. How do practitioners go about choosing the size of the market (how many contracts) to quote? It seems ...
0
votes
0answers
41 views

Building Volatility Surface of S&P500 with SABR MODEL [closed]

The goal is to produce a volatility surface for S&P500 index using the SABR model on Matlab software, in order to price a forward start option later. My dataset is a matrix containing (todays) ...
0
votes
0answers
33 views

Old codes for Companies (CUSIP/ISIN/SEDOL)

I found that for example ISIN have following rules: Merger and acquisition: Old ISINs for stock become inactive and are replaced by securities with a new ISIN. Bonds only need new ISINs if old ones ...
1
vote
0answers
39 views

Basis Swap Dual Curve Calibration

The long end of the Libor swap curve needs to be constructed from Basis Swaps because there are no other instruments traded. Can please someone explain the concept of Dual Curve Calibration?
1
vote
0answers
25 views

Asset prices Boom,Bust and Recovery cycles

Is there any systematic way to detect the Boom, bust and Recovery cycles in Asset Prices ? Are there any good references about the Topic ? Thanks in advance.
1
vote
1answer
82 views

Proving the put call parity

In my course notes on the put-call parity, the proof is presented by going over two inequalities, namely $\text{RHS} > \text{LHS}$ implies arbtirage and $\text{RHS} < \text{LHS}$ implies ...
3
votes
2answers
130 views

Stochastic Calculus problem with three processes? (Itô calculus)

Can someone help me solve this following Itô Calculus problem? Let $Z(t):= [B(t)*X(t)]/S(t)$ We have the following dynamics of B(t), X(t) and S(t): $dS(t)=\alpha S(t)dt+\sigma S(t)dW(t)$ $dB(t)=rB(...
3
votes
1answer
55 views

What should happen to the equity risk premium as rates change?

Suppose I set forward-looking expected returns for capital markets using a dividend discount model framework, under which expected return for equities is the sum of dividend yield, expected trend ...
2
votes
0answers
39 views

Option on Futures vs. Stocks

The Black-Scholes call on a Futures is valued as: $$ C_t=e^{-r(T-t)}[F_tN(d_1)-KN(d_2)] $$ It holds: $F_t=S_te^{r(T-t)}$. If I plug this back in, I get the Black-Scholes call on a stock: $$ C_t=S_tN(...
4
votes
1answer
78 views

QuantLib Python: caplet/swaption pricing under dual curve

Is there a way to price caplets/swaptions in QuantLib python (v 1.6.2) under dual curve i.e. pass projection curve for forwards and discounting curve for discounting the cash flows? Goutham has an ...
1
vote
1answer
65 views

Monte Carlo option pricing with R

I am trying to implement a vanilla European option pricer with Monte Carlo using R. In the following there is my code for pricing an European plain vanilla call option on non dividend paying stock, ...
12
votes
2answers
3k views

Why is Brownian motion useful in finance?

The following is an interview question from Mark Joshi et al. Quant Job Interview. Question: Why is Brownian motion useful in finance? I am from a Pure Maths PhD background (functional analysis, ...
0
votes
0answers
29 views

Normalization of Time Series

I want to start quantitative research on the SPY, I got the data and want to start time serie analysis. The thing is that I don't know how to start. I know that a have to normalized the data in order ...
2
votes
1answer
37 views

Expectation and variance of $\int_0^t (W_s)^n ds$ for any positive integer $n$?

It is well known that the integral $$\int_0^t W_s ds,$$ where $(W_s)_s$ is a Brownian motion, can be derived using Ito's Lemma. More precisely, Ito's lemma on $d(tW_t)$ implies that $$d(tW_t) = ...

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