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26 views

Understanding output from Johansen Cointegration test

I have a VECM model that Im using to determine the revenues for a firm, based on factors like Interest rates, S&P 500 and company specific variables, as follows: Stage 1: $$z_t= a+ bX_t+e_t$$ ...
18
votes
3answers
3k views

Hedging Covid-19 and other low probability high loss risks

Covid-19 and similar risks are low probability, high loss events. Does it make sense to utilize options to provide hedges for such events? For example, should one utilize long positions in deep out-...
1
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0answers
47 views

covariance matrix in the CAPM model

I'm running a simulation for a 5 asset portfolio, calculating the optimal weights of each asset both with the statistical model (i.e. single index) and with the CAPM. my question is: how do you ...
0
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0answers
33 views

Quick Question: Error in Theta Put Option for Black Scholes VBA

I have started an analyst role and I am trying to familiarize myself with the Black-Scholes formula in VBA to gauge option prices. However, I cannot seem to get the Put Theta to work properly. I have ...
0
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1answer
56 views

The ratio of upside deviation to downside deviation in portfolio weighting

I've been calling this ratio "acceleration" in my head, so I'll do the same in this post. The question is, is this relationship used anywhere and if so, how? My thought process is as follows. Risk ...
4
votes
2answers
1k views

Which process is the most commonly used for modeling stock prices?

I'm thinking of writing a master's thesis about pricing options using Levy processes, but I wonder if these processes are actually used for modeling stock prices or not (and which specifically)? And ...
0
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0answers
54 views

why don't people trade KOSPI2 options electronically

I checked the screen market of KOSPI2 and found that there are reasonable quotes only for the first two months contracts. I understand in Korea there are some restrictions on foreign investors but I ...
0
votes
1answer
51 views

Trying to code Haug's 4.19.7 Double-Barrier Binary Asymmetrical

The following Clojure code correctly outputs the table in section 4.19.6 of "The Complete Guide to Option Pricing Formulas", but I'm wildly out on the asymmetrical in 4.19.7. ...
0
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0answers
59 views

Geometric brownian motion and probabilities

A stock's price movement is described by the equations $dS_t=0.02S_tdt+0.25S_tdW_t$ and $S_0=100$. An investor buys a call option on said stock with a strike price $K=95$ which expires in $T=2$ years. ...
0
votes
1answer
64 views

Splitting a spot swap into a forward swap and a 3 month libor

I read the following statement: We can construct a 5 year swap using 3 month libor combined with a 3mo-4.75yr forward swap, weighted by the dv01s of each part. I am not sure I understand how this ...
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0answers
23 views

No unique no-arbitrage price when the stock price can remain unchanged

In a 1-period binomial model, with initial stock price 100, if the stock price is either 50,100, or 150 after 1 period then how can I show there is no longer a unique no-arbitrage price for a European ...
0
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1answer
33 views

“using daily returns over rolling annual periods from the regression”

I stumbled upon the following sentences many times in different papers, all describing an approach for the same experiment: They try to calculate sensitivities (Beta) for different stocks via ...
0
votes
1answer
44 views

Correct calculation of returns from a pairs trade

I am trying to understand how pairs trading works but I am confused about how to go about calculating the return on the pairs trade when I reverse my positions. I have been reading 'Pairs Trading - ...
0
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0answers
27 views

Stock IPO date data

I would like to get the date a company was founded and the date it went public for all US stocks listed on major exchanges (NYSE, NASDAQ). I thought this data would be very basic and easy to find, ...
4
votes
2answers
118 views

How to make a trading universe of liquid futures contracts

I am forming a universe of liquid futures/liquid FX forwards. I want a list of all liquid contracts, the key word being liquid. This is for an academic project, but you could imagine liquid being ...
1
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1answer
75 views

true or false: the risk-neutral measure is useless in this situation

Example 2 of this Wiki article on the risk-measure describes how a stock price $S_t$ that is modeled with Geometric Brownian motion with drift $\mu$ $$ dS_t = \mu S_t dt + \sigma S_t dW_t $$ can be ...
1
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0answers
63 views

Properties of straddles given different maturities

Lets say one wants to use straddles to "go long vol". Is there any way to give general properties of the different lengths of expiry of such a strategy. Or general pros and cons of having longer vs ...
0
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0answers
11 views

Adding an economic policy uncertainty (EPU) variable to Fama French model

I would like to do test the significance of a new variable that I would include in the Fama French 5 factor model. The new variable would be the Economic Policy Uncertainty (EPU) index from Baker et ...
5
votes
2answers
112 views

How to get a Daily Market Cap using Python

I'm looking for a way of getting free historical daily market caps ? I can get todays Market cap from yahoo but need old market caps also.. thanks for the help. ps: I don't have Bloomberg and school ...
0
votes
2answers
55 views

Campbell Shiller log linear relation

I am trying to derive the campbell shiller log linear relation, and i got stuck with something (i believe) quite simple. Before we are using the first-order tayler expansion is where i got stuck, ...
0
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0answers
30 views

API for Real-time and historical Stocks Tick Data

I am looking for a reliable API (e.g. Bloomberg, but available for individuals) where I can get stock tick data up to the minute, both historical and real-time. Obviously I am willing to pay for the ...
2
votes
1answer
82 views

Variance attribution calculation from a covariance matrix

Say I have a portfolio with two assets with weights $(x, y)$, and the covariance matrix of the two asset is $((a, r)(r, b))$. Then the total portfolio variance would be $x^2a+2xyr+y^2b$. It is easy to ...
0
votes
1answer
69 views

How to normalise options? Normalise strike price, premium, tenors

I would like to normalise options, to being able to compare it. Make price of underlying symbol = 1, have same tenors, and same step for the strike price. 1) Use 1 as stock_price and scale ...
2
votes
1answer
117 views

short squeeze basic questions

I have a question that might appear simple for the more experienced here. I'm trying to understand the concept behind short squeezes and i'm a little lost. From what I understood: Short selling ...
0
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0answers
30 views

Interpretation of SML (Security Market Line) parameters

I estimated a SML in terms of excess returns and I get the following parameters: $\gamma_0=0.0286$ $\gamma_1=0.0263$ How can i give an economic interpretation of these two values? How they shape ...
-1
votes
2answers
63 views

Delta Forward and Put Call Parity

Vanilla options are traded interbank with delta hedge. The instrument employed to a delta hedge is usually a forward with the same expiry (and opposite delta) as the option. This means that in effect ...
0
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0answers
20 views

How to calculate regime-swtiching correlation matrix without assumption on distribution

There's rich literature on Markov regime-switching dynamic correlation matrix. But they seems to assume a certain kind of distribution and use MLE/EM. For example, some sort of multivariate GARCH plus ...
1
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0answers
40 views

Is Hodges-Tompkins adjustment applicable for all volatility estimators?

Can the Hodges-Tompkins adjustment (S. Hodges, R. Tompkins, The Sampling Properties of Volatility Cones 2000,2002 JoD) be used to de-bias any estimator computed from overlapping observations? It ...
0
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0answers
24 views

Stock returns: Exponential time decay

I am replicating some research that uses two years of single stock returns (i.e. N= 250*2= 500) and then applies an exponential decay with a half-life of one year to these returns. Does this mean ...
0
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0answers
46 views

intraday periodicity adjustments

I recently studied and implemented the intraday periodicity model of Andersen and Bollerslev from here. https://www.sciencedirect.com/science/article/abs/pii/S0927539897000042 The seasonality ...
1
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0answers
25 views

Replication Portfolios and Binomial Option Pricing

To price a call/put option with two possible future states of the world, I understand we can price the option by essentially calculating the price of a replicating portfolio that gives the same ...
0
votes
2answers
60 views

Bloomberg European equities tickers

I am trying to understand the abbreviations in the Bloomberg European stock or STOXX data. Each ticker represents company name abbreviation - Listed exchange. For example, CSP - LN is Countryside ...
0
votes
1answer
36 views

Is the market price of risk subjective?

Assume a model defined in a incomplete market. Assume that model contains some parameters $\theta_1 ... \theta_k$. In a risk neutral setting, one more parameter appears into the modeldynamics which is ...
6
votes
3answers
524 views

What are the biggest new advancements in the field of quantitative finance in the last 10 years?

Examples like new research or findings but also older research or findings actually starting to get implemented. Is machine learning starting to get a foothold in finance? Are there any new practical ...
0
votes
0answers
22 views

How to visualise Option Strategies P&L with different dates in 2D?

How to visualise P&L of Option Trading Strategy with different dates in 2D? To better understand, get intuitive feeling and think about what's going on. Especially highlighting the maximum ...
-1
votes
1answer
67 views

Risk Neutral Pricing, a quick question [closed]

I am a newbie. The risk neutral pricing has the following formulation: $$P=\frac{\hat{E(d)}}{R}$$, But the discounted expected value has the formulation of: $$P=\frac{E(d)}{R}$$. The text book ...
2
votes
0answers
39 views

Fama Macbeth and Momentum factor

I am working on a Fama MacBeth regression with excess returns on the LHS and Size, Value an Momentum factors on the RHS. In literature, the Momentum factor is often definded as the cumulative past 6 ...
-1
votes
1answer
88 views

Why do we make the Markov assumption on financial markets? [closed]

Why are Hidden Markov Models (HMM) a good fit to describe the behaviour of the prices of financial assets, when these models require that the underlying stochastic process satisfies the first-order ...
-3
votes
2answers
73 views

Tips on building an automated trading system in python [closed]

I have an trading API that allows me to send/cancel/update orders. I have marketdata that I can use through another API that gives me orderbook data. Now let's say I want to build a simple arbitrage ...
1
vote
1answer
56 views

Understanding CSA and novation

I had an example at work which I didn't have full intuition of. The example is as follows: You have novated a forward starting cross-currency basis swap (let's say 10y10y EUR ccbs). The PV is ...
0
votes
1answer
95 views

Would C++'s speed over Python make it a more applicable language for scalping arbitrage opportunities?

I am using the Bittrex exchange API to ping markets to poll whether there are triangular arbitrage opportunities available for USD/BTC/LTC/USD. Note that I am not trading but rather synthesising them ...
0
votes
0answers
18 views

Lognormal correlation bounds for Monte Carlo

As the lognormal distribution imposes bounds of attainable correlations as discussed in https://stats.stackexchange.com/questions/41734/attainable-correlations-for-lognormal-random-variables my ...
1
vote
1answer
54 views

Is this methodology for finding the minimum variance portfolio with no short-selling sound?

I have below here an excerpt from a book on (among other things) mean-variance analysis showing how to find the minimum variance portfolio (Risk and Portfolio Analysis: Principles and Methods, by Hult,...
0
votes
0answers
15 views

Contingent Claim Bounds

In my course on discrete-time finance we derived the following equality for a lower bound for the value of a not necessarily replicable contingent claim $D$. Here we are looking at a single period ...
0
votes
1answer
58 views

White noise in ARCH model

I am looking at the ARCH model where we have $\hat{\varepsilon}_t^2=\alpha_0 + \alpha_1\hat{\varepsilon}_{t-1}^2 + \alpha_2\hat{\varepsilon}_{t-2}^2 + \cdots + \alpha_q\hat{\varepsilon}_{t-q}^2 +v_t$ ...
0
votes
0answers
17 views

Where can I download ideally live or at worst delayed advance, decline, TRIN, TICK etc

I would like to be able to access live or delayed quotes of indicators like TICK, TRIN, ADV, DECL and up volume and down volume as well as VIX, BKX, OSX etc. and the cash indexes like SPX and RUT I ...
0
votes
0answers
42 views

Mean variance portfolio - alternative formulations

From this lecture on YouTube the lecturer states that there are three ways to form the mean variance portfolio (minimize variance for a given return, maximize return for a given variance, maximize a "...
0
votes
1answer
39 views

FX quoting convention

I saw the quote as this: EUR/USD 1m ATM 0.3150/0.3190. I guess these are vol levels. What the units of these bid and offer quoted?
0
votes
0answers
32 views

Modeling short-selling accounts

I am having trouble modeling short selling mechanics in my backtesting system. When I sell stock short, I make the following changed to account variables: Credit Balance += 200% of the stock value ...
0
votes
0answers
42 views

Double jumps stochastic volatility model (SVCJ, Duffie et al, 2000) - characteristic function for VIX

Currently I am working at my master's degree paper where I want to evaluate VIX options using stochastic volatility jump models.I got some MATLAB codes for the SVCJ model for the S&P, but as the ...

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