All Questions
21,718
questions
3
votes
2
answers
321
views
Is there an efficient method or technique to find an arbitrage between two FX dealers?
Crossposted on Mathematics SE
I was able to solve the following problem and find the arbitrage but only after spending a long time on it and trying out different possibilites. Is there a method or ...
2
votes
0
answers
9
views
When getting the local vol surface from the implied vol surface, do we interpolate the strikes?
Using the dupire method:
$$\sigma(T, K)=\sqrt{\frac{\sigma_{\mathrm{imp}}^2+2 \sigma_{\mathrm{imp}} T\left(\frac{\partial \sigma_{\mathrm{imp}}}{\partial T}+(r-q) K \frac{\partial \sigma_{\mathrm{imp}}...
- 21
6
votes
1
answer
386
views
Importance sampling for Monte Carlo with local volatility in practice
I am given a diffusion with a local volatility to price barrier options:
$$dX(t)=X(t)\mu dt+X(t)\sigma(t,X)dW_t$$
I want to use Importance Sampling to price barrier options "far" out of the ...
CommunityBot
- 1
0
votes
1
answer
39
views
Multiplicative Metric Variance
I come from a math/statistics background and as learned some stuff as a data analyst
I learned a certain technique to calculate period to period variances between some metrics.
I was wondering if ...
- 6,445
0
votes
0
answers
28
views
Moneyness, implied volatility and option greeks [closed]
I know that the more an option is ITM, the more is the implied volatility. I would like to deep dive into the concept, what is the logic that drives this statement? Also comparing an option with a ...
-2
votes
0
answers
45
views
Monte Carlo simulation via Excel - a very basic question [closed]
I am learning about simulation modelling / Monte Carlo using Excel. I've never done this before. I am looking at the Microsoft page https://support.microsoft.com/en-us/office/introduction-to-monte-...
- 117
2
votes
1
answer
60
views
Liquidity Stress Test of Investment fund - Liquidation tracking error
It is my first message on this board, I have hesitated a few days before bothering you with my struggles, but I've seen a lot of very knowledgeable and patient people here willing to help out.
I ...
0
votes
1
answer
36
views
IFRS 9 PiT-PD model when the lagged dependency exceeds one year
It is a common approach to model the point-in-time PD (PiT PD; meaning that the PD depends on the current or lagged economy) by regressing default rates on current or past macro variables (such as GDP ...
- 31
1
vote
0
answers
14
views
Bond indices : where to find yields and asset swap spreads by rating and average duration?
I am looking for alternatives or relatively similar information about historical data for yields and/or asset swap spreads for bond indices in major currency. I would like to gather the info by rating ...
- 31
1
vote
1
answer
314
views
Proper Data Partitioning For Building a Forecasting Model
Goal: A team and I are looking to build a model that performs a predictive action for the state of the market on day T + n, using the data at hand on day ...
CommunityBot
- 1
0
votes
0
answers
44
views
Risk-Neutral Non-Linear Option Pricing Black Scholes Model
Looking for some help on this question.
Suppose the Black-Scholes framework holds. The payoff function of a T-year European option written on the stock is $(\ln(S^3) - K)^+$ where $K > 0$ is a ...
- 53
2
votes
1
answer
97
views
Cash balance sign in hedging portfolio
Consider a derivative which depends on $n$ assets with price vector $X=(S^1,\dots,S^n)$. The derivative value $V_t$ is given by the function $v(t,S)$, so that the hedge ratios for the hedging ...
- 7,999
0
votes
0
answers
39
views
Use filtered historical simulation to calculate VaR on a repo trade
I would like to calculate the VaR for a repo trade using filtered historical simulation incorporating GARCH.
So, for example, in the first leg, 3000 of bond goes out on day 1. In the second leg, 3000 ...
- 2,638
0
votes
1
answer
74
views
Probability of success given expected return and volatility
I am reading Taleb "Fooled By Randomness", and the author says that a 15% return with 10% volatility translates to 93% success in a year and 50.02% success in any given second.
Could someone ...
- 2,638
0
votes
0
answers
13
views
Deviation in RSI indicator in comparison to the figure displayed by exchange
I'm trying to implement RSI in Python 3. However, there's a deviation in the RSI figure returned by my method and the figure displayed by the exchange.
In some cases, the deviation is less than 1. But ...
4
votes
2
answers
260
views
Stochastic process for modelling correlation?
This question relates to Financial Machine Learning, and more specifically to competitions like Numerai.
In this competition we have a dataset X and a target y (return over a given horizon). The ...
- 7,999
0
votes
1
answer
95
views
0
votes
1
answer
68
views
book for (investment banking) market risk overview
what is a good intro book / course / source of knowledge on the topic of Market Risk for investment banking? I'm IT person cooperating with quants market risk team, and found myself either missing ...
- 12k
0
votes
1
answer
393
views
Include Dollar Cost Averaging Strategy in BT python
I am using bt backtesting to test between an initial lump sum into 'ETH-USD' and a dollar cost average approach. I will then look into a different mix of equally weighted crypto.
What I like about bt ...
CommunityBot
- 1
0
votes
1
answer
206
views
Maximum value of a call option proof [closed]
I'm reading Sinclair's Option Pricing and am confused by the proof for the maximum value of a call. It makes sense logically that a call can't be worth more than the underlying, and so:
c <= S
The ...
- 3
0
votes
1
answer
29
views
How to formalize and validate models of fundamental factors involved price changes?
Suppose you have some stock X, and its price can be considered a time series. You believe that real-world number Y, like industry or government statistics, which is also time series, influences stock ...
CommunityBot
- 1
1
vote
0
answers
86
views
Hedging FX Risk of a fund
I manage a mutual fund where the underlying assets (or the shares i buys) are in USD, and my mutual fund is in CLP (Chilean Pesos). How can i hedge this fx risk without affecting the return of the ...
- 11
0
votes
1
answer
280
views
Option strategy Collar
I've question regarding Collar strategy (long Put with strike $k_1$ and short Call strike $k_2$ and long stock), when calculating the theoretical P&L of the collar for large up movements of the ...
CommunityBot
- 1
3
votes
3
answers
8k
views
How to build a cross currency swap pricer?
We're looking to build a pricer to convert a funding spread in a given currency over a specific funding basis e.g. 20 bps EUR 3m€ and convert it to a funding spread to a different currency with a ...
- 1
4
votes
2
answers
110
views
How would you approach this positive EV and high variance betting problem?
My friend was asked this question and I’m curious as to how people would play. There are 15 cards face down on a table. You can draw any number, n, of them at random. You only see the cards you have ...
0
votes
1
answer
169
views
+100
mathematical proof of the hedge ratio formula for bond futures
We know that the hedge ratio ϕ_F that we should use in order to to the duration-hedging through bond futures is:
$$ϕ_F= -(DV01_B / DV01_{CTD} )\cdot CF_{CTD}$$
Where $\textrm{DV01}_B$ is the dollar ...
- 103
0
votes
2
answers
211
views
Best way to lock in margin rate via hedging
I'm currently paying a 1.25% margin rate. This rate is based on the Fed Funds rate plus a margin. I would like to hedge against the possibility of this margin rate increasing. What is the best/...
CommunityBot
- 1
0
votes
1
answer
127
views
Wrt speed, how optimised is QuantLib's Heston pricing class?
I have a pricing formula that is 300x the speed of the QuantLib's Heston pricing class. Is it incredibly slow?
For context, on a slow 1.6 GHz Dual-Core Intel Core i5 processor, my method can reliably ...
- 7,003
1
vote
1
answer
96
views
A book that has exercises which closely resembles the content of Lorenzo's Stochastic Volatility Modeling book?
I'm currently going through Lorenzo's book Stochastic Volatility Modeling. The one issue I have is that it does not contain exercises to test your knowledge and learn. Is there a textbook that is ...
0
votes
1
answer
78
views
Is this linear interpolation for clean bond price an approximation?
Consider the attached discussion from Berk and Demarzo's Corporate Finance.
I am confused about the calculation of a bond's "clean price". It seems that the procedure described above seems ...
- 12k
0
votes
1
answer
58
views
Stock price modelling under binomial tree model?
In binomial tree model, the stock price is modelled in the form of $S_{k\delta}=S_{(k-1)\delta}\exp(\mu\delta+\sigma\sqrt\delta Z_k)$, where $\delta$ is time invertal between two observations $S_{k\...
-1
votes
0
answers
39
views
Why does NPV correspond to "cash in our pockets now" for risky investments? [closed]
For a positive NPV project with risk free cash flows and assuming access to a competitive money market, it is trivial to show (by appropriately borrowing or lending at the risk-free rate) that the ...
- 115
2
votes
0
answers
340
views
What are some advanced methods for bond risk transformations?
Consider a portfolio of bonds within a given yield curve (e.g. Gilt curve), consisting of positions in every bond in the curve. I'm looking for ways to transform the risk of the portfolio into ...
5
votes
1
answer
2k
views
How to calculate average entry price for perpetual swap contracts?
I'm trying to calculate the average entry price for perpetual swap contracts for use in back-testing a trading strategy, as per Bitmex's documentation:
A Perpetual Contract is a derivative product ...
CommunityBot
- 1
1
vote
1
answer
56
views
Sampling dollar bars for ML model of multiple tickers
I have a Neural Network model that provides predictions for the future returns of a portfolio comprising stocks and cryptocurrencies. The original model operates on standard time bars and generates ...
CommunityBot
- 1
0
votes
1
answer
204
views
Choosing a time step in Monte Carlo simulation of forward rates in LIBOR Market Model
Lets talk about the Monte Carlo simulation of forward rates in Euler discretization scheme under the $T_N$-forward measure, a so called terminal measure. Suppose that we have a number of time steps ...
CommunityBot
- 1
2
votes
1
answer
95
views
Uncertainty on volatility prediction using GARCH(1,1)
I have daily returns data and I predict the variance for the next day using GARCH(1,1) as follows
...
CommunityBot
- 1
0
votes
2
answers
655
views
Valuing Acquisition Target Case Study - DCF and IRR?
Wondering how best to answer a case study I need to do. Case study info as follows:
Given Selling company's P&L (3 years actual, 4 years forecast) - closing date on end of year 3 - and a PPT of ...
CommunityBot
- 1
3
votes
1
answer
716
views
Euler Scheme for Jump-Diffusion models
Jump-diffusion models (as Merton) have following SDE:
$$dS_t=\mu S_tdt+\sigma S_t dW_t+S_tdJ_t$$
where
$$J_t=\sum_{i=1}^{N_t}(\xi_i - 1)$$
$\xi_i$ - i.i.dn $N_t$ - Poisson process
Do we in Euler ...
- 1
1
vote
0
answers
53
views
+50
R resources for GMM estimation and testing of multifactor asset pricing models
Has anyone seen R script for GMM estimation and testing of asset pricing models such as Fama-French 3-factor or similar? Ideally, I would like to have R scripts corresponding to Cochrane "Asset ...
- 2,638
1
vote
1
answer
86
views
Basic option question - spx implied move per day in points
I know that an option implied move per day is vol/sqrt(252).
That being said if I want to convert this in actual SPX points, am I just supposed to multiply this by the forward ? I've been told a 2/...
CommunityBot
- 1
0
votes
0
answers
32
views
+50
Testing one asset pricing model against another a la Cochrane: a counterexample
I am reading section section 14.6 of John Cochrane's lectures notes for the course Business 35150 Advanced Investments. On p. 239-240, he discusses testing one asset pricing model against another. I ...
- 2,638
0
votes
0
answers
47
views
Market Maker Dynamics and RFQ
In the fixed income space, market makers, such as banks, often utilize platforms like TradeWeb. I'm seeking a clearer understanding of the workflow involved in this process.
From my current ...
- 11
1
vote
2
answers
205
views
0DTE volatility and greeks
When european stock options have very little time until expiration (less than 2-3 hours), they can exhibit extreme sensitivity to changes in the underlying asset's price. This behavior leads to ...
- 968
1
vote
2
answers
156
views
Implied volatility greater than realized volatility at all strikes?
It is usually stated that the implied volatility is statistically generally --- not always --- greater than the realized volatility. It seems this statement is made with regard to the implied ...
- 968
0
votes
0
answers
82
views
Why is quadratic variation path dependent? [closed]
In chapter 2 of The Econometrics of High Frequency Data the quadratic variation relative to a grid $\mathscr{G}$ of any process $X$ is defined as
$$
[X,X]_t^\mathscr{G} = \sum_{t+1\le t} (X_{t+1}-X_t)^...
- 2,638
0
votes
0
answers
28
views
Why is BG porcess a pure jump process?
Recently (~10 years ago), Kuchler&Tappe have set up a new stochastic process called Bilateral Gamma process. This process is defined through its increments:
$$\forall t\geq s, X_t-X_s\sim \Gamma_{...
- 101
0
votes
1
answer
106
views
Equity and Credit Portfolio Return
This might sound like a trivial question but would appreciate the answer.
How would you calculate the return of the portfolio consisting of only equity and credit instruments? For example, consider ...
CommunityBot
- 1
0
votes
2
answers
89
views
Constructing payoff with options
Suppose that COMPANY A has issued a special bond that does not pay any coupons. At maturity T, the bondholder receives the principal (face value) equal to 1,000 plus an additional ...
- 5,008
0
votes
1
answer
510
views
How to download full daily historical data of MSCI AC Asia Index
I'm trying to download the daily historical data of the MSCI AC Asia Index. I've been testing different combinations of the following url: https://www.msci.com/eqb/esg/performance/110.0.all.html using ...
CommunityBot
- 1