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13 views

Mapping internal ratings to external ratings for a scorecard

I am building an internal rating model for commercial loans relying on expert-based scorecards. The ultimate goal of the exercise is to develop the model so that it maps with credit rating agencies' ...
18 views

Equity Ratio: Short Sell / Sell [on hold]

Is there any value with analyzing Cash Equity securities where you aggregate a specific Sell Short (trade volume) / Sell (trade volume) ?
31 views

Is it an obvious high reward low risk strategy?

FXCM broker's rules about financing, it state that the account will be charged for financing fees at 5PM NewYork time, and its get tripled on Wednesday. Then, I am think that what if I open an large ...
23 views

Binomial Option Pricing Model

This isn't homework. I'm going through sample questions for an exam. They include the answer, but no explanation. I've studied this model, but I don't know how to setup this tree to get any of the ...
29 views

Trading 3 stocks X Y Z where X correlated to Y, Y to Z, but no other correlation is available

Suppose you have 3 stocks, say X Y Z. You also know that X is correlated to Y using some test (say ADF) and Y is correlated to Z. However, no transitivity, and no threesome correlation whatsoever ...
21 views

Converting 30day annualized vol to 2day annualized vol

I would like to convert 30-day annualised vol to 2-day annualised vol as the title reads. Am i right to say: 2-day annualised vol = sqrt(2/30)* 30-day annualised vol.
16 views

Currency Hedged Excess Return

In the famous article "Global portfolio optimisation" of Black and Litterman, the authors defined the excess return on currency-hedged assets as the following :  E_t = 100 \frac{P_{t+1}X_t}{P_tX_{...
25 views

Negative Libor Simulation

Can LIBOR rates be simulated using short rate models? If no, what is the reason behind it? What is a simple model to simulate LIBOR rates? Especially in a negative rate environment.
30 views

Alpha estimation from factor models

This question makes reference to section 8.4 - Application to performance measure - of the 2007 publication "Performance Measurement for Traditional Investment" by Véronique Le Sourd. You can find the ...
32 views

Which curve does the interest rate risk fall in?

For example, Australian government issues a bond denominated in USD currency? Which curve does the interest rate risk fall in? Australian Gov Curve or USD Gov Curve?
28 views

How is CPR (re-)calculated for fixed fully amortizing agency mortgage pass-throughs given prior partial prepayments by mortgagors in the pool?

Background: in the US, mortgagors are allowed to prepay any amount and in any arbitrary time during the lifetime of the mortgage, which leads to prepayment risk if this deviation differs from the ...
14 views

Matching the frequency of Fama-French factors and asset returns

I want to double-check and be sure I am working with the same data frequency - I am interested in monthly data. I get data from two different sources: prof. French's website Yahoo Finance - I take ...
40 views

Modifying Basic Black Scholes Equation For Time Dependent Variables - Per Wilmott?

I am reading Wilmott's book and don't understand why he makes the following step to re-write the PDE. I get equation 8.4, that's just the typical PDE for a dividend yielding stock where r(t), D(t) ...
32 views

OTC Derivatives Moneyness Conventions

When looking at the OTC Derivatives market, is there a standard moneyness convention that is applied? And if so, what is that bucketed approach? For example: 90%-110% for ATM, 70%-90%, 110%-130%, etc.....
36 views

Intrinsic value vs Time value of an option: what's the purpose/motivation for their definitions? [on hold]

I am an actuarial student and our text has the following definitions: Intrinsic value: This is the payoff assuming the expiry of the contract immediately rather than at some future time. ...
55 views

Rationale of Fama Macbeth procedure

I am confused about the rationale behind the Fama Macbeth regression methodology. I understand how to practically perform the two steps but not why one should do so. For instance, considering the ...
68 views

Bootstrapping zero coupon rates

How do we obtain discount rates to obtain zero coupon rates given only swap rates? what is the procedure? Also what exactly is curve calibration?
21 views

How does the implied correlation change when the spot price of the Basket Call/ Put option goes up?

Given a basket Call/Put: $BasketCall_{payoff} = max[0, \Sigma^n_{i=1} w_iS_i(T) - K]$ If the spot price of the basket goes up/down, how would the implied correlation change? I guess what I am not ...
42 views

SABR Implied Vol: Normal Approximation vs Log-Normal Approximation

I am having trouble understanding the difference between the normal and log-normal implied volatilities from Hagans SABR model: http://web.math.ku.dk/~rolf/SABR.pdf. As far as i understand the main ...
59 views

Insight on how factor models achieve dimensionality-reduction?

Going through the literature on factor models, I keep seeing the phrase "dimensionality reduction" and how factor models allow for the modelling of assets in high-dimensional cases, and I would ...
26 views

Rolling seasonal and seasonal reversal patterns factor investing

I am trying to create a pattern variable that takes the mean of the same month (lag 12, 24... 240) for the last 20 years and the mean of the other months lag (1-11, 13-23, 25-35... 229-239). (...
44 views

Beginner FFT (Fourier) transforms on closing prices for Apple

I don't know math very well, but I have been programming for many years. I would like to use FFT as a parameter to a ML model. The FFT is diving down sharply. I tried many stocks and its the same. ...
105 views

Exotic Trading Basic Questions - Banking

I just joined a support team for an equity exotic trading desk in a bank, I am looking for a high level overview of how exotic trading works in a bank. For my questions let's take a common product: ...
17 views

Nasdaq price index, dividend yields and dividend

In a paper that I'm reading it says: We collect monthly observations on the Nasdaq composite price index (without dividends) and the Nasdaq composite dividend yields, and compute the Nasdaq ...
58 views

How to handle Holidays in Time-Series Datasets?

Im currently analyzing a Dataset of the German Stock market. While Holidays like Christmas or New Year aren't a problem for Return Calculation or Portfolio Performance, im testing some regressions and ...
57 views

What does A(B) mean in time series

So I have been reading some papers regarding time series, mainly from Granger and Engle. I am a bachelor econometrics student, but I have never seen such notation before. For example, A(B)(1-B)x(t) = -...
55 views

Why use the risk-free rate for discounting in a risk neutral world?

I am reading Options, Futures, and other derivatives by John C. Hull. In the chapter on Binomial trees, he remarks: A risk-neutral world has two features that simplify the pricing of derivatives: ...
39 views

15 views

Tickers of companies included in Euro Stoxx 600

I'm trying to analyze the historical data of the individual companies that are part of the Euro Stoxx 600 index. For that, I am using a Python code that needs the tickers of the companies. Due to my ...
39 views

mean reversion model estimation - what method?

how can I estimate this model for mean reversion?
9 views

Firm/Industry-level database cross-country|world-wide

I've been looking for a while any source of information, any firm-level or industry-level database with information like: number of employees, sales, market share, assets, liabilities, etc. cross ...
68 views

Local Volatility with Monte Carlo Simulation

I am trying to implement a Monte Carlo Simulation using Local Volatility Model (Dupire’s Equation). I’m pretty sure I can build a very good LV surface, however, I do not know how to use it in the MC ...
30 views

What data should be used for short-rate in simulaiton?

For short-rate models like Vasicek and Hull-White, what rate should be used as the starting value of short rate? Is it Federal funds rate or 3-month US treasury?
86 views

Useful Book for starting to programming quantative Finance

Could anyone recommend me a good book for an introduction to start programming quantative finance (preferably in R)? I found a lot of different ones, but unfortunately without any reviews.
27 views

Performance Analytics SnailTrail Chart subscript out of bounds error

I am running the chart.SnailTrail function from the PerformanceAnalytics package in r. I get the following subscript out of bounds error. Error in chart.SnailTrail(z, Rf = 0.009261, main = "", : ...