# All Questions

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### How should I interpret the (insignificant) coefficients of Fama-French 3-factor model?

I am writing a mid-term thesis on the Fama-French factor model. I have built 5 portfolios sorted by the Book-to-Market ratio. The first portfolio is the lowest-BM group and the last portfolio is the ...
13 views

### Questions about beta, correlation, and covariance

Currently, I calculate beta, correlation, and covariance measures using daily log normal returns of Security A and Benchmark A. What would it mean if I were to use daily log normal excess returns in ...
38 views

### Black Sholes option pricing with all but Delta [on hold]

I'm trying to setup a little option pricing model in excel. I have all the information for the inputs (interest rate, IVs for different deltas, time to expiry, strike price, underlying price) but what ...
30 views

I am wading into pair trading concepts. Here is one article I've read. I understand for these strategies our intention is to go long on one asset and short another, however I do not understand what ...
17 views

### Covariance time frequency

I have rolling 3-year returns for an asset and a benchmark. I want to compare the covariance of the asset and benchmark, should I use the covariance of the rolling 3-year returns or the covariance ...
27 views

### Hedging an option on a non-traded asset in BS world

I have given the following task given. Suppose you are in a Black-Scholes World where you have the standard assets $$dS_t = \mu S_t dt + \sigma S_t dW_t$$ $$dB_t = r B_t dt$$ and now you also ...
18 views

### Expense ratio in ETF price

I am examining the relationship between the price of an ETF and the index it is tracking (in this particular example, the Vanguard S&P 500 ETF (VOO) and the S&P 500 index). I can see the ...
17 views

### Calculating the fundamental value of house price to separate bubble component from the price

The bubble in asset price is defined as the deviation of the asset value from its fundamentals, empirically Mendoza and Terrones (2008) measure the bubble as the deviation of an asset price from the ...
25 views

### Beta: Cumulative vs. Simple Returns

How would calculating Beta using cumulative returns differ from Beta calculated with monthly returns? Is one more appropriate to use than another? https://en.wikipedia.org/wiki/Beta_(finance)
11 views

### Black-Derman-Toy model AND European-type bond call option

In a Black-Derman-Toy model in which Ω ={ ω1, ω2, ω3, ω4 }, the risk-neutral probability for each state ωi, i = 1, 2, 3, 4 is 1/4 . The spot rates in BDT model are given as follows. ω r1 r2 ...
14 views

### Consider a single period security market with two assets. Assume the current prices are [on hold]

Consider a single period security market with two assets. Assume the current prices are s1(0)=1,s2(0)=2 There are two states at time one and the payoff matrix is A= ( \begin{matrix}1 & 1\\ 1 ...
30 views

### Cointegration between prices and dividends. How do I get the following expression?

Actually, I have two questions: 1. Let us assume that expected returns are constant. Then, we have the following expression for how the prices should be determined, provided that the operators are ...
24 views

### Which technique determines if var x1 leads var y? Assuming var x1 may need to be transformed

Suppose I want to predict future changes in variable y (stock price over time). I notice that variable x1, inverted and delayed three months, tends to lead y. Which technique can I use to find other ...
11 views

### how to model NGARCH using 5min frequency data?

NGARCH model using 5-min High-frequency data in R I wanted to analyze some 5 minute frequency data of stock market. My teacher asked me to use NGARCH to model, but I didn't know how to program.Here ...
24 views

### Monte Carlo (resampling) in m.v. portfolio optimization

The instability and high sensitivity of optimisation results can be augmented by adding another layer of quantitative methodology in the form of Monte Carlo Simulation. The name Monte Carlo alludes to ...
15 views

### How would I develop confidence bounds for a function of 3 random variables, 2 of which are correlated?

I am tasked with developing confidence intervals for the function x = 1 - |(a+b)/c| where a, b and c are random variables. a and b are normally distributed, but c is heavily skewed left. further ...
24 views

### Does convexity in the IV space means convexity in the price space?

Let's assume that we only look at OTM options to construct a Risk Neutral Density (RND). As the RND is the second derivative of the price of the option with respect to the strike, we would expect ...
23 views

### How to price a phoenix and snowball type autocallable options?

I'm currently studying the pricing of autocallable options, especially snowball (accumalated coupon) and phoenix (accumlated coupon, but the coupon may also be autocalled if the underlying price ...
25 views

### Relationship between correlations of long only and short only portfolio with long-short portfolio?

I am working on one quality and value factor, the correlation between a long-only or short only portfolio of these two factors is respectively 0.7 and 0.8, and the correlation between combined long-...
90 views

### CAPM - Expected vs. actual returns

I'm trying to calculate alpha in excess of CAPM and have seen a few slightly different calculations for CAPM. The primary difference I am seeing is that some equations use expected market returns (e....
12 views

### Relation between low rate and credit risk

In the Handbook of Fixed Incomes Securities, there is this part: The lower federal funds rate prods banks to be less aggressive in issuing deposits, such as certificates of deposits (CDs). Their ...
30 views

### PV01 of Physically settled Swaptions contrat

Can you please help me figure out how to find PV01 Physically settled Swaptions contract 20Y30Y with fwd rate 0.01974 with fixed freq=2, using ACT/360 with 02/08/2019 -> 02/08/2039 and 02/08/2069 ...
46 views

### Why do coefficients flip after the including a lag in the optimisation? implied volatility/skewness/ivspreads

I'm hoping some of you guys can help me out. I am applying the paramametric portfolio optimisation of Brandt, Michael W., Pedro Santa-Clara, and Rossen Valkanov. in which the weights on specific ...
24 views

### Serial Correlation in Rolling Change Linear Regression Models

1.) Lets say I have two time series GDP, BUSINV from (1948, 2019); Frequency of Data is Quarterly. 2.) Say I want to predict GDP i.e. GDP ~ BUSINV 3.) Since GDP is not stationary (i.e. level) and ...
487 views

### What is the appropriate benchmark for a Long/Short VIX futures strategy?

Trying to figure out the benchmark for a L/S Vix futures stragegy, doesn't seem like only long or short Vix futures would be appropriate, any ideas? Thx
34 views

### Settlement of currency options

wanted to understand the market action done to settle a call option. Let's say I entered into a export seagull for eurusd and on the date of expiry my sell call gets exercised. Assuming that my sell ...
37 views

### Hedging convexity for long-dated fixed cashflows

I'm wondering what are the different ways of hedging the convexity in fixed long-dated cashflows (maturity > last liquid point). Also, if you'd say receiver swaptions would be the way to go, could you ...
58 views

### Carry & roll - question regarding the repo transaction

Could someone please explain the carry and roll trade that a lot of traders are doing with negative euro debt? I read an example that they borrow in the repo market then buy a longer dated bond to ...
13 views

### affine function of random variable [migrated]

If $X$ is a random variable, then $F(X) = a + bX$ where $a,b$ are constants is an affine function. What is the technical/formal name of a function which is not affine, but for which the following ...
19 views

### Anywhere to find historical float shares (or restricted shares) of US stocks?

I'm trying to collect the historical stock float data, but can't find it nowhere. We can easily find historical quarterly shares outstanding data in sec edgar, and we know that floating stock = ...
46 views

### Stress testing fixed income Yield curve with Nelson Siegel

I am attempting to stress test the Zero coupon Yield curve using The Nelson Siegel model as described in the following papers : Generating Yield Curve Stress-Scenarios Representative Yield Curve ...
13 views

### Wald-Wolfowitz runs test on different time frames

I have developed an indicator that employs the Wald-Wolfowitz (W-W) runs test on log-returns, i.e., $r_t =\log(P_t)-\log(P_{t-1})$, for various time frames for intra-day futures. Log-returns are ...
32 views

### How to set parameters and datatable for Modeling in Python [on hold]

I'm starting a quite complex and long financial modeling project, I'm looking for the best ways to set my datatables/parameters in the most efficient way instead for coding in block with everything ...
25 views

### Problems with Performance Attribution Analysis

I am using the typical Brinson Model formula, but it doesn´t work, I think that is explained because of the compound effect and rebalancing... when I look my portfolio's YTD return and multiply by the ...
67 views

### Do we need to assume underlying returns are normal in BSM model, given Central Limit Theorem?

I am trying to get a better understanding of Central Limit Theorem and how it can be used in life and in finance. From what I have read, the BSM model assumes the underlying asset's simple returns ...
45 views

### Supertrend indicator formula

Recently i am working on an indicator called "Supertrend", however i am a hard time to get the right value. The formula ...
48 views

### How can the BS riskless hedge break down when volatility changes, if a random walk can produce any price history?

Supposedly, a Black-Scholes riskless hedge will break down if the volatility is non-constant. However, a random walk with any sigma could produce any price history with some non-zero probability. If ...
18 views

### Discount drop calculation for a Treasury Bill

How is the discount drop calculated for a US treasury bill for a forward settle date?
51 views

### CDOs before the 2007 crisis

I read that before the financial crisis of 2007 the CDOs were so complex that investors could not analyze them. Were they just complex, or was there no public information about what they contained? ...
34 views

### Tangency portfolio with two additional constraints

I know that the formula for determining the weights of the Tangency portfolio is given as $w_{tan}$ = $\frac{\Sigma \mu}{\iota^{\prime}\Sigma\mu }$, but I was wondering how to derive the weights in ...
49 views

### How does buying a CDX and then taking a short CDS position generates alpha?

Can someone please explain to me how buying a CDX and then taking a short CDS position generates alpha? I am so confused.
50 views

### DCF Valuation Models

Does anyone know of any websites that have sample models or mind sharing their DCF models? Trying to get started modeling and can't seem to find many great resources. I know of Damodaran, but his ...
99 views

### How does the volatility skew/smile relate to hedging/trading vanilla contracts?

I know that obtaining and calibrating the smile is important in the hedging and trading of exotics since we use vanillas to hedge and price exotics. How is the smile important in the hedging and ...
41 views

### EONIA capitalisé jour tr eur: can't find index data! Do you know what kind of index is?

To get EONIA capitalisé jour tr eur index returns (monthly returns from 01/2007 until the most recent) is challenging. First i googled the index name searching for the ISIN or the index provider ...
41 views

### looking for a simple realistic parametric volatility model

Which parametric volatility is realistic to test quickly and qualitatively a model? I do not wish to fit market quotes but would like to have a non-trivial volatility with skew or smile to do some MC ...
41 views

i have a quick question about conversion factor and his implication in calendar bonds roll trading. I go short on a calendar roll (short front+long back) which has the same cheapest to deliver. The ...
37 views

### Stochastic volatility with Bayesian inference in Python [on hold]

Do you know any package in python, for Bayesian stochastic volatility in python?
79 views

### Sum of relative weights in portfolio equal to 0

In the context of portfolio optimization, for now I encountered only cases where the sum of relative weights $h_n$ in each stock is equal to 1. However, I've seen that there are cases where the sum is ...