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1answer
38 views

Pricing of forwards contracts

Of the courses I am taking in college this semester, two are Financial Mathematics and Derivatives. In each course, we learn different formulas to calculate the forward price of a forward contract. ...
0
votes
0answers
22 views

How do brokers calculate reported values for options Greeks?

How does a broker calculate approximate values of the Greeks for options? I assume calculations vary from broker to broker, but I am generally ignorant of any overarching strategy. To calculate delta ...
0
votes
2answers
33 views

How are repo rates / repo haircuts determined?

Sorry if this question is a little too basic but what determines repo rates? Not like "they are OTC transactions so they are determined directly between counterparties" but like what is the ...
0
votes
0answers
23 views

Disjoint covariance matrix estimation

I have always estimated correlations and variances disjointly and later combine them to construct covariance matrices. Specifically, variances are estimated in a univariate setting (only using the ...
-1
votes
0answers
19 views

One step binomial tree derivation [closed]

I am trying to derive a one step binomial tree. I do this by setting up a portfolio of $\Delta$ shares and a short position in an option, and finding the $\Delta$ that makes the portfolio risk-less, ...
1
vote
0answers
27 views

How to reduce a covariance matrix after clustering?

I have an N = 100 covariance matrix. I am clustering the covariance matrix say into 5 clusters. How can I compute the reduced ...
1
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0answers
47 views

Quasi Monte Carlo and Brownian bridge (how to combine them)

I am trying to understand how quasi Monte Carlo (QMC) and the Brownian bridge (BB) can be combined to prices an asset, but I am having a hard time combining what I have picked up from the resources I ...
0
votes
0answers
39 views

Interest Rate Swap valuation technique [closed]

This is a very basic question. I just want to understand why do we need zero rates and forward rates to value an IRS. Why can't we not use par rates( observable rates ) and use interpolation ...
-1
votes
0answers
39 views

Confusion on different ways to compute volatility of a portfolio [closed]

I am new to finance so this might be very basic for most of you. Assume I have 3 indeces given as monthly total returns: $id_1$, $id_2$, $id_3$ and I assign them equal weighs, $0.33$ each. I can ...
-2
votes
0answers
16 views

Event study in Rstudio, interpretation help [closed]

Currently doing an event study in rstudio. Looking at an estimation window with 250 days and event window -2,2. Does anyone know what the different alpha and beta mean in the output? For example, ...
0
votes
0answers
9 views

External/Internal debt [migrated]

https://www.bis.org/publ/work550.pdf page 7 extract "Third, the distinction between external and internal debt is important. External debt, long seen as a key driver of financial crises in EMEs (...
2
votes
2answers
48 views

Intuitive explanation for the value of a binary option being lower when volatility skew is positive?

According to the formula for pricing binary options with a volatility skew, it appears that the value of the binary option for a given strike gets lower, the higher the volatility skew at that strike. ...
0
votes
1answer
30 views

Can both good buying and good selling cause a bond to go special on repo?

A bond is known to go special when its repo rate gets particularly low relative to the GC (General Collateral) repo rate. In my mind, this can be caused by two scenarios: 1. Institutional interest to ...
-4
votes
0answers
27 views

Hypothetical royalty question that requires some serious math [closed]

What would actually happen if we put a unique digital security for sale at auction and then awarded 1% royalty for every owner it crosses hands with, so that every seller acquires 1% of all subsequent ...
2
votes
1answer
47 views

COS Method and existence of density

Hey in the COS method we use characteristic function of $\ln{S_T}$ to price european options (by recovering density from characteristic function). But how do we know that density exists? For example I ...
1
vote
0answers
36 views

Shrinkage estimates for position sizing

Problem: correlation between realized returns per trade and ex ante payoff is relatively low. Given that, it's possible that small (large) bets should be larger (smaller) than recommended by Kelly. I ...
0
votes
0answers
24 views

Calculating CDO price

I'd like to simulate the expected payoff $\mathbb{E}[\Psi(L)]$ depending on the (stochastic) loss process $L$, when buying a CDO. I'm informed about the structure and how they work, yet I wonder of ...
1
vote
1answer
64 views

Real world probabilities from option implied risk neutral density?

The work of Breeden and Litzenberger-formula (https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2642349) gives us a risk neutral probability distribution of a stock price, depending on the option ...
0
votes
0answers
73 views

Are these two expectations the same?

I'm studying Markov Processes and Ito diffusion, I'm just at the beginning but I can't understand the different formulation of the expectation formulated in two different books. I'm talking about ...
0
votes
1answer
67 views

RIsk-retun of 2-asset portfolio with perfect negative correlation

Risk-retun of 2-asset portfolio with perfect negative correlation $(\rho=-1)$ is a straight line with slope of $\frac{|\mu_2 - \mu_1|}{\sigma_2+\sigma_1}$ since $\sigma_P=|\omega_1\sigma_1 -\omega_2\...
0
votes
0answers
36 views

How to annualise hourly returns?

I have hourly open,high,low,close candles data for a particular asset. I wrote my own algo and some back testing code that replays the data from the past hourly candles to calculate the total return ...
1
vote
0answers
45 views

global minimum variance portfolio vs all-bond portfolio

I'm leaning portfilio theory and have got some questions. global minimum variance portfolio is defined as the leftmost point on the efficient frontier which suggest it is a all-bond portfolio if risk ...
1
vote
0answers
69 views

Quanto put hedge\ replication with a brownian motion

Consider $d B_{us}(t)=r_{us} B_{us}(t) dt\\dX(t)=X(t)(r_{us}-r_J)dt+X(t)\sigma^T_J dW(t)\\d B_J(t)=r_{J} B_{J}(t) dt\\dS_J(t)=S_J(t)(r_J-\sigma^T_X\sigma_J)dt+S_J(t)\sigma^T_J dW(t)$ where the $\sigma$...
4
votes
1answer
176 views

Measuring expected returns

Most papers in the literature measure expected returns using the simple average of past returns. Why is this? When is it more correct to use geometric returns instead? Any good references? I know that ...
2
votes
1answer
87 views

AUD funding rates

I am looking into into AUD rates and I am a little confused. I tried to summarise below my doubts. FX swap basis (difference between AUD FX swap implied rate and AUD OIS rate). Before covid-19 it has ...
0
votes
1answer
43 views

Market consistent valuation of a pension scheme with return smoothing

Assume we have an insurance company that is valued under a risk-neutral probability measure. Further assume that the company, for simplicity, only has return smoothing based insurance. Assets return ...
0
votes
1answer
78 views

Fed fund market after QE

I read that before 2008, reserves of the banking system (vault cash and reserves at the Fed) fluctuated between \$40 billion and \$80 billion. However, as a result of quantitative easing, reserves ...
0
votes
0answers
14 views

error using (candlestick-patterns-subodh101)library ,AttributeError: module 'candlestick' has no attribute 'bearish_engulfing' [closed]

from candlestick import candlestick precioslast= BD_final['SPX IndexPX_LAST'] precios_high= BD_final['SPX IndexPX_HIGH'] precios_low= BD_final['SPX IndexPX_LOW'] preciosopen= BD_final['SPX ...
0
votes
1answer
54 views

Quantlib Calendar Advance

Hi I'm trying to advance a business date (28-12-2012) by 1 day and 1 week according to the Japan calendar. ...
1
vote
0answers
10 views

Size factor - Root Market Cap Weighted

I saw in a paper for specifically the Northfield equity risk model that when constructing their factors they use the standard, time series regression to get each stock’s beta to a specific factor and ...
0
votes
1answer
59 views

Equity risk premium and the earnings yield

I am trying to understand the relationship between the risk-free rate $R_f$ and the earnings yield of equities. I have read that an increase in $R_f$ leads directly to a decrease in the equity risk ...
3
votes
0answers
75 views

Explicit form for forwards Feynman-Kac formula

This might be a simple question, but I'm having trouble with it. Consider the Cauchy problem with final condition. \begin{equation} \begin{cases} \frac{\partial u}{\partial t}(t,x) + \mathcal{L}u(t,x) ...
0
votes
0answers
51 views

How to do research/find industries for intraday trading? [closed]

Intraday trading is mostly based on technical analysis, but to apply it one has to find a healthy company. So how do I find the right industries for intraday trading? Does it have its own research or ...
2
votes
0answers
21 views

Cox-Ross-Rubinstein Model Closed Formula for Call Option

I am I quite new to the topic and at the moment I am self studying the CRR model. My notations are: $N$ number of periods, $\delta T$ length of one period, $S_0$ stock price at time $t=0$, $f_0$ ...
2
votes
2answers
85 views

Convexity in a DV01 neutral trade

I have got a question about DV01 neutral trades. Generally speaking: if you perform a 2s10s steepener on a generic govt yield curve, would convexity be a risk? If so, in what measures? Technically, as ...
1
vote
3answers
333 views

FX official rates

How are "official" FX rates calculated? Are these given by an average across all big dealers or brokerage systems (eg EBS, Reuters)?
-3
votes
0answers
26 views

Cost of setting up portfolio (basic options derivatives question) [closed]

I am reading Options, Futures and other Derivatives for my masters derivative course, and when using a one-step binomial tree, the book states that: $S_{0} \Delta-f=\left(S_{0} u \Delta-f_{u}\right) e^...
-3
votes
0answers
27 views

Issue costs in adjusted present value [closed]

In an example from "Valuing levered projects" in my book (to illustrate calculation of APV), one of the elements included in the calculation of adjusted present value is "issue costs&...
-3
votes
2answers
97 views

Proof: Brownian Motion Path Continious with Probability One [closed]

How can one show that the paths of the standard Wiener process are continuous in $T$ with probability one? Can we just proof it with the assumption of independence ? Thank You in advance!
-1
votes
0answers
38 views

Which Sharpe ratio calculation is correct [closed]

I have a series with \$ returns in it, and I would like to calculate the Sharpe ratio. I have read this question: How to calculate Sharpe Ratio from $ returns? and relying on the answer I produce the ...
0
votes
1answer
41 views

Heston model with underlying BS dynamics always gives 1/2 of the right value, what am I doing wrong?

Just as an exercise I'm trying to follow this paper: https://arxiv.org/ftp/arxiv/papers/1502/1502.02963.pdf In the section 2.2 it calculates the value of a Call using the characteristic function of ...
0
votes
1answer
23 views

How do I get European tick size or historical intraday opening and closing prices?

I'm looking for each European stock, the tick size. Given that obtaining this information directly is difficult (I don't think that databases, even the ones for academic purposes provides this ...
0
votes
0answers
32 views

Nelson-Siegel-Svensson Yield Curve Estimation From Zero-rates Using QuantLib (Python)

I am using QuantLib in Python to estimate yield curves using the Nelson-Siegel-Svensson (NSS) model with zero-rates as input. Since the NSS model in QuantLib uses the discount function to estimate the ...
1
vote
0answers
21 views

Price of an ITM American Put Spread

Should an ITM American put spread be equal to its intrinsic value as the options could then be exercised for the intrinsic value instantly? There is not more the spread would be able to make. This isn'...
2
votes
1answer
86 views

Is pricing options using the volatility surface implied by the Heston model equivalent to pricing using the Heston model directly for all options?

Given Heston model parameters calibrated from vanilla put/call options it is possible to imply a volatility surface by pricing calls or puts for different strikes and maturities and solving the ...
0
votes
0answers
25 views

Can we proof the boundary condition for the Black Scholes derived from a replicating Portfolio?

So for Black Scholes we know that the PDE is the follwing: ${\frac {\partial V}{\partial t}}+{\frac {1}{2}}\sigma ^{2}S^{2}{\frac {\partial ^{2}V}{\partial S^{2}}}=rV-rS{\frac {\partial V}{\partial S}}...
3
votes
1answer
92 views

Stochastic Volatility vs Vanna-Volga

I'm working on the calibration of the Heston Stochastic Volatility Model for some FX option data for my bachelor thesis and I was asked "Why should people use Heston instead of other simple ...
-3
votes
1answer
40 views

Issue with Monte Carlo Simulation on an interest rate tree in Excel

I need to build a Monte Carlo simulation model that does 10 iterations on the interest rate tree. I need to identify the interest rate given a sequence of moving up and down the interest rate tree. I ...
2
votes
1answer
77 views

What are the practical costs of repo for a bond trading desk?

I appreciate what a repo/reverse repo transaction is, but I'm struggling to understand exactly how the cost of funding trades via repo works from a practical point of view for a bond trader. Current ...
0
votes
1answer
40 views

Designing scanning logic of past history for probability of common market pattern re-occurrences in single timeframe

How should I go about designing algorithm that would collect VWAP from all "candles" in a timeframe and determine common patterns like the once in the image. I'm not sure if the logic design ...

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