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2 views

How can one apply models such as Fama-French factor model?

I'm reading into Fama-French 3- and 5-factor models. I notice that they use the returns from market portfolios to "predict" stock excess returns. But obviously we cannot know ahead of time the returns ...
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1answer
37 views

Returns and logreturns differences

I have a time series of stock prices and I tried to calculate simple returns and log returns. However, I end up that simple returns has positive mean, but log returns has negative mean. Is it possible ...
-1
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0answers
26 views

Exotic Traders: Trading Decision

I am curious to understand the mind of an exotic trader. Suppose if you just sold an exotic option and want to hedge out some greeks risk of your exotic option, would you hedge your gamma or your vega ...
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1answer
59 views

What is the stock price expectation?

The Hull textbook (and accompanying technical note) says that the expected stock price $\mathbb{E}[S_T]=S_0 \exp(\mu T)$. However, the answers to a British actuarial examination (Q4 for September 2018)...
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0answers
20 views

How to calculate standard deviation of continuously compounded four-year stock returns?

Currently I am preparing for quant interview and I encounter the following question in Heard on the street. Question: If the standard deviation of continuously compounded annual stock returns is $...
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0answers
24 views

Using Python Quantlib's FittedBondDiscountCurve as Evaluator of Parametric Curve - Errors

I am using Quantlib's FittedBondDiscountCurve in Python 3.7 and setting MaxIterations to 0, and giving a guess_solution, which then turns the routine into an evaluator for the parametric form I choose,...
1
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1answer
33 views

SDE Parameter Estimation

Have a question about "How to estimate parameters for SDE with multiple Brownian Motions ?" Let's say $X_t$ follows the process: $dX_t=\mu dt+\sigma_1 dW_t^1 + \sigma_2 dW_t^2 $ I think I've checked ...
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1answer
46 views

Stochastic Vol Mathematical derivation

I want to understand the mathematical steps done. Can someone please simplify the derivation of d(pi) from Pi? Thanks in advance.
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0answers
19 views

Stochastic Volatility and Sticky Delta

"Stochastic volatility models can be thought of as sticky delta model. And Local volatility model as sticky Strike." Please help me understand how the author has reached this conclusion.
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0answers
18 views

Implied vol vs Realised vol on Event Days

How implied vol varies vis-a-vis realised vol on an event days?
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0answers
31 views

Calculation cross-currency basis

I am trying to calculate cross-currency basis on the 3-month horizon for a certain set of currencies. The formula should be $ccb = F/S (1+y_{foreign currency}) - (1+y_{USD})$ where $y_{USD}$ is Libor ...
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0answers
16 views

ATM Curve Construction: Short-Dates

Please explain example 1 and example 2. In example 1 how does 6 appear in the square root function. And in example 2 it is written:" Assume it is known that spot will be completely static during the ...
1
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0answers
29 views

Volatility spread of Strangle

It's written in a book by Giles Hewitt : " The bid-offer spread quoted on a Strangle in volatility terms will usually be wider than the ATM spread to the same maturity because strikes away from the ...
0
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0answers
16 views

Where to find the components of an index and how to replicate it by subset selection?

I am interested in replicating the performance of the eurostoxx 50 index using different statistical methods. That's what ETFs do, right? How to replicate an index using subset selection? I think I ...
1
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0answers
34 views

LP for max stress test

I'm trying to find a solution to the following problem: Assume a portfolio of $n$ zero coupon bonds mapped in risk by their respective DV01. Assume that the ZC portfolio created cannot exceed max ...
0
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0answers
55 views

Algorithmic Trading Competition at MIT

Has anyone participated in MIT trading competition before(traders@mit)? Wondering what type of data are used-tick data or bar data-and are participants connected to a web socket? Are we allowed to ...
2
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0answers
24 views

CVA for options

I am trying to do a simple unilateral CVA for call and put options. I found this discretised formula online: $$ CVA = \sum_{i=1}^m \frac{EE(t_{i-1})DF(t_{i-1}) + EE(t_i)DF(t_i)}{2} \left( PD(t_i) - PD(...
1
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1answer
24 views

Find Interest Rate Swap BUMPs from Bloomberg in Excel

I have a bunch of plain vanilla interest rate swap contracts with all the relevant details regarding payment structure such as notional, fixed rate, index, payment frequency, reset convention, etc.. ...
1
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1answer
83 views

Linear Or nonlinear Black Scholes Equation

I have been going through the analytical solutions of black scholes equation which transforms it to a heat equation. $$u_{t}=\frac{1}{2}\sigma^{2}u_{xx}$$ Now if the volatility is constant , then its ...
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0answers
21 views

differences between model prices (outputs) and market prices? [on hold]

If we use the market data downloaded from Bloomberg and calculate the output by using the VBA function. And Use the output from the VBA code to compare with the actual market price. Why there are ...
2
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0answers
37 views

Delta Hedging Example

I was reading Dynamic Hedging by N. Taleb and in the chapter dedicated to the delta, there is this example of a trader position in options (one-month European call, flat yield curve, forward is ...
1
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1answer
33 views

some questions about pricing an asset or nothing put option with a strike price equal to St

I am working on a homework exercise where the aim is to price an asset or nothing put with K = St, offcourse the normal formula could be used St * N(-d1), but I was wondering if pricing the asset by ...
1
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0answers
44 views

Difference Log vs simple returns in calculating momentum

I need to calculate the past 12 month momentum returns of a stock to compare relative performance of various assets. I am doubting what would be the (practical) difference between using log returns ...
1
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0answers
43 views

Quesion about the VBA function of continuous cap look up

Here is the VBA function to calculate the cap price Can anyone tell me what is N and t0? From the textbook, N = the number of reset (or payment) dates and t0 = time until the first reset date. But ...
1
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0answers
34 views

Pricing Equity Swaptions

Consider a swaption to enter into a standard equity swap as a fixed-rate payer, equity receiver, in which the notional principal is fixed. If the strike is K. the underlying swap starts at time 0=n ...
3
votes
1answer
105 views

Solving $dX_{t} = \mu X_{t} dt + \sigma dW_{t}$

I want to solve the following SDE: $$ dX_{t} = \mu X_{t} dt + \sigma dW_{t} \quad X_{0} = x_{0}$$ Integrating, I get: $$ X_{t} - x_{0}= \mu \int_{0}^{t} X_{s} ds + \sigma \int_{0}^{T} dW_{t} $$ $$ ...
4
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1answer
58 views

Bloomberg Ticker mapping with Reuters RIC

I am trying to map Bloomberg ticker into Reuters one. For example this one: EDZ3C 96.625 COMDT Few years ago aforementioned BBG ticker would be mapped to Reuters ...
3
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1answer
42 views

Aggregating quotes data for different time frames

I need to aggregate data for a higher time frame. I have data for 1 min time frame as follows ...
3
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1answer
83 views

FX option trading questions

Are all FX trades ( RR, BF, ATM)quoted in implied vol term delta neutral trades? If trades are not delta neutral at the initiation does that mean it is speculative trading? Why/ why not?
3
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1answer
114 views
+50

Finance: Portfolio - Long Short Portfolio construction

I am trying to construct a Long / Short portfolio in R. Say I have two portfolios Tech and Mature and I want to go long on the <...
4
votes
1answer
48 views

Negatively Correlated Assets with similar medium-term trends

Theoretically, one could have stock prices with returns $\rho_1(k)$ and $\rho_2(k)$ having mean values $\mu_1$ and $\mu_2$, but still be negatively correlated with $$ \mathbb{E}[(\rho_1(k)-\mu_1)(\...
2
votes
1answer
59 views

Cap price as bond options

I am currently struggling with model calibration of the Hull-White (or Vasicek) model to Caps and Floors. My main problem is that I am confused about the notation. In Brigo & Mercurio (2006, p. ...
2
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2answers
89 views

Instantaneous forward rate within the HJM framework

within the HJM framework, the dynamics of the instantaneous forward rate are defined by: $$f_t(T)=f_0(T) + \int_0^t\alpha_s(T)ds+\int_0^t\sigma_s(T)dW_s$$ or in differential form: $$df_t(T)=\alpha_t(...
1
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0answers
48 views

How to compute return series for a German government bond with a 0% coupon?

Recently, the German government issued a long-dated bond with a 0% coupon. I'm trying to implement a historical VaR model and would like to know the best way to model the historical returns of this ...
1
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0answers
37 views

Correlation coefficient without cash flows?

I'm an intern at a company and one of our tasks is to calculate the the probability of default of both participants of a Swap(a Client and a Bank), for which we first need the correlation coefficient ...
2
votes
1answer
59 views

Frankfurt stock exchange companies

I can't seem to find all the symbols for companies traded at Frankfurt stock exchange, presented as csv (or any downloadable format). Could you help me?
1
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1answer
155 views

Determining if a time series is random

I originally posted this in the Data Science Stack Exchange. Another poster suggested I post it here. The idea would be to identify "orderly" segments within a market time series and use them to ...
1
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0answers
49 views

FX option trading [duplicate]

Are all trades quoted in implied vol terms delta neutral trades? If trades are not delta neutral at the initiation does that mean it is speculative trading? Why/ why not?
1
vote
1answer
61 views

What is the difference between Cost of Currency Hedging and the Price of a Currency Pair Forward?

I am looking at Reuters Datastream and all they seem to provide is the settlement price of the CME EURGBP contract (which more or less equals current spot). But what does it actually cost me to ...
1
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0answers
39 views

About Dual Delta of FX option in the paper: FX volatility smile construction by Dimitri Reiswich & Uwe Wystup

In the paper: FX volatility smile construction by Dimitri Reiswich & Uwe Wystup. It mentions the computation of premium-adjusted spot delta as follows (Page 6): As a beginner of FX option, I ...
0
votes
1answer
31 views

How can I determine whether a UK company trades internationally

Can anyone think of ways to determine whether a UK company trades internationally? I have seen that possibly if the have 'GB' at the start of their VAT number. Can any financial ratios signal this?
1
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0answers
41 views

Searching for two papers of H.Leland with regards to capital structure

I am searching for two papers of H. Leland which I assume previously were online, as many published papers have cited them. The first work (Lecture notes) extends the Leland(1994a) model by ...
1
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0answers
66 views

Relationship between ROE and IRR

In the textbook I read the following: We can increase the present value of a share of common stock with a new investment only if $ROE > r$ , where $r$ is a discount rate (capitalization rate). ...
0
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0answers
39 views

Compound Plus Simple Interest Rates: Convert one expression to a sum of expressions

Suppose you have a fixed compound interest rate Ci (say 1%), a fixed simple interest rate Si (say 2%), and a total of N months (say 24). So, if you have a start value V (say 100 dollars), at the end ...
1
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1answer
75 views

Pairs Trading situation Spread changes

I'm setting up and following a pair trading operation by the method of summing the distances squared (SSD). After determining the best pairs, I have to track the spread between the normalized prices. ...
2
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0answers
49 views

What model do market makers in equity derivatives commonly use to price, hedge, and fit the IV surface?

What is the industry standard/common model used by market makers in equity derivatives to trade across the IV surface?
1
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1answer
68 views

Calculating the Macaulay duration of a floating-rate bond

I am new to the pricing of bonds: Suppose that I would like to price a floating-rate bond with par value \$100, with maturity at $T$ years from now, paying coupons semi-annually. Suppose that $r_{n-...
-3
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0answers
37 views

Mean reversion of Interest Rate and Volatility [closed]

Why Interest rate and Volatility are supposed to be mean reverting?
1
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0answers
50 views

Portfolio Systematic Risk, Breaking it down into factor % contributions

I have a portfolio (p) of N equities, with let's say weights vector (m) at the start of the calculation period. Each equity has its own set of factors (like corresponding country, industry index, etc.)...

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