# All Questions

12,472 questions
14 views

### Floating coupon rate based on sales?

Just a quick question, can a floating coupon rate be tied to SPV daily revenue? My client want to issue an ABS bond, and its coupon would be (0 + 2% of the daily sales) Would it be admissible? or ...
12 views

### Is there any optimization model in pair trading strategy? [on hold]

I found some pair trading models using stochastic process but not optimization model. Is there any pair trading model using optimization method ?
20 views

### Portfolio calculation for 20 currency pairs

I'm trying to find a way to compute an optimized basket of n currency pairs based on 2 properties. Let's say i have 50 pairs * 2 (long/short) = 100 possible items. A basket has 2 properties to ...
25 views

### Stochastic solution (mean, variance) to lognormal drift and normal volatility

I have trouble deriving the state equations for a mixture of normal/lognormal stochastic differential, namely for its a) expected mean, (b) variance, and (c) drift adjustment for LMM - libor model I ...
24 views

### Real World pricing of a Constant Notional Cross Currency Swap

I have a question about Cross Currency (XCCY) Swap pricing in the real world. There are plenty of papers going nicely into detail, how XCCY Basis Swaps and XCCY Constant Notional Swaps work. Also ...
61 views

### What stochastic process produces Student's t-distributed returns?

If I think daily log returns have a normal distribution, I can simulate intraday log returns as normal, because the sum of normal variates is also normally distributed. What if I want to simulate ...
36 views

### What's Hedge Curve Template

what's a Hedge Curve Template (HCT)? How does it help value a bond? It appears to me it normally is used together with another curve where x,y-axis being date and discount factor. And it appears to ...
14 views

### Heteroskedasticity-Consistent Covariance Matrix Estimation [R] [migrated]

I would like to ask about the difference between the vcovHC and vcov in R. The former is described as the Heteroskedasticity-Consistent Covariance Matrix Estimation. What is the difference between ...
44 views

### From risk limits to pnl projection?

As a fresh risk manager, today I got an assignment to check whether our risk measurements / limits are setup properly (whether the limits are so tight that affect our p&l) . Better if I can ...
15 views

### Risk neutral interest rate calibration

I've only worked with RW model before but not RN interest rate models, so I'm looking for some practical insights on how RN calibration is done for interest rate models. Let's say I want to start ...
27 views

### Relationship between tick size, tick value, and contract size?

For many options and futures I can see that Contract Size = Tick Value / Tick Size Are these values always related like this, and if so what does the relationship mean?
38 views

### How should one hedge option positions on the date of expiry?

Let's say we are looking at a non-liquid equity ticker and a slightly OOM option on it. The problem is that if we buy delta to hedge it, it could move the underlying market and push the option to be ...
24 views

### FORECAST-Diabold-Mariano TEST

how can I interpret the test of Diabold-Mariano, here ar my results from R-STUDIO: ...
26 views

### When to use overlapping and when non-overlapping returns?

When to use overlapping or non-overlapping returns for further PCA decomposition?
37 views

### Vasicek and Extended Vasicek Model

I want to ask about basic reasoning in Vasicek and Extended Vasicek model. Why $P(T,T) = 1$ for non arbitrage model? Can we place $P(T,T) = 10$ or other numbers? Is it correlated with The Law of ...
21 views

### Solving the sde under the Bates Model

Can someone please help me to find a way to simulate or find an approximation for the sde? So far, I've come across some research papers that use the 'Markov Chain Monte Carlo' method. But are there ...
19 views

### Calculating VaR by risk Factors such as IR and FX? [on hold]

Can anyone explain step by step method of calculating VaR of a portfolio by Risk factor such as IR ??
31 views

### Do companies' Reuters Instrument Codes (RICs) change over time?

I am merging two datasets: 1) One which includes Reuters US companies' RICs and the number of news linked to each company; 2) Compustat US, taking data from 1996 to 2018. I have few questions: ...
31 views

### Problem in copula fitting

I have returns of 2 stocks: stock1 and stock2. And I want to fit pair copula. I use this libraries library(VineCopula) library(copula) then I select an ...
48 views

### Best practice approach for computing beta

I was wondering how one should choose parameters such as "frequency" of returns (daily, monthly etc.), "time frame" (1 or 3 or 5 years of historical data etc), benchmark (same of the portfolio or the ...
66 views

### What are some scenarios where trading a risk reversal makes sense?

I understand that risk reversal is a bet on the skew of the implied volatility curve. But when would one have a view on the skew of the curve? I understand that one can have a view on the underlying. (...
27 views

### Relationship between Tracking Error and Beta to benchmark

Analyzing an indexed portfolio, can we say there is any relationship between ex-ante TE and Beta to benchmark? Tracking error is the volatility of the difference in returns between the portfolio and ...
33 views

### API returning company tickers found in provided news article

I'm looking for a REST API that accepts a string containing a news article (example below) as payload and returns an array of company tickers (eg TSLA for Tesla) mentioned in the article. Example ...
35 views

### Brownian motion from price-series, what is the time step?

If I assume a given empirical price-series is a brownian motion, I can estimate the drift and standard deviation as long as I know what the time step was when the process was 'generated'. But since ...
28 views

### Approximation of portfolio VaR (after mapping) when Delta and Gamma both equal zero

As titled, I am having trouble estimating the VaR of a portfolio mapped as a function of a single risk factor $S$, in the form : $$V(S) = S^3 - 30S^2 + 300S + 150$$ with current value $S = 10$. $S$...
33 views

### Multi-factor model… forecasting stock returns

I have selected several useful factors for forecasting stock returns. These are statistically significant in sample and I have also done some out of sample forecasts with positive results. Does ...
22 views

21 views

### Distribution of the Information Ratio // Mean and Variance Product

We are investigating the distribtuion of the information ratio. However, instead of using the original information ratio defined as IR=\frac{E(r_1)-E(r_2)}{\sqrt{Var(r_1-r_2)}}, \end{...
40 views

### Is it possible to adapt Fama French Model with a 6 factor Model?

I am currently working on my thesis and I was wondering if it was possible to add a new factor to the five model one. This new factor would include the ESG's characteristic of the stock. I would like ...
52 views

### When a bank enters a swap with a counterparty, when does it decide to use a OIS curve as its CSA Term, versus a counterparty specific “CSA Curve”?

What determines whether a swap should be discounted against a standard OIS curve VS a 'custom' CSA curve specific to the swap's counterparty? (such custom curves are marked as spreads to some base ...
51 views

### Forecasting a seasonal series with R

I am working with the program "R". I used the command "seas (X-13)" to deseasonalize my quarterly series, then I did the forecast with it. Therefore my forecast is in deseasonalized terms. Now, I was ...
13 views

### Longstaff Schwartz with future conditional coupons

I've implemented the L-S algorithm for a simple put option. I want to value a more complex derivative which has future conditional coupons which only occur if the option is in the money. How would I ...
39 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 ...
41 views

### A stringent test of stock return predictability? The role of one-sided hypothesis tests [on hold]

A stringent test of stock return predictability? The role of one-sided hypothesis tests... In a well-published paper, Trading Volume and Cross-Autocorrelations in Stock Returns TARUN CHORDIA ...
50 views

### Is it necessary for $P(K, t) - P(K + s, t) \geq se^{-rt}$ to hold?

Let $P(K, t)$ be a put option with strike price $K$ and expiration time $t$. Let $s > 0$. Is it necessarily true that the inequality $$P(K, t) - P(K + s, t) \geq se^{-rt}$$ holds? I know that ...
125 views

### Portfolio - Default Probability

Suppose we want to identify the frequency of default on a portfolio with a 1000 loans. In the independence case, each firm’s default process follows a Bernoulli distribution with parameter $p = 0.01$. ...