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15 views

help with derivation of equation 8 in Derman and Kani's binomial tree for local vol

in this paper "The Volatility Smile and Its Implied Tree" - Derman and Kani 1994 i understand the derivation of all equations up to 7. But eq 8 i cannot figure out how to derive! i have ...
0
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1answer
33 views

Calculate annualized returns and annualized volatility from monthly returns?

I have a dataset with monthly returns (In decimals) Jan-2008, Feb-2008 .... Dec-2008, Jan-2009 .... Dec-2017 This is what I have done, ...
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2answers
38 views

What do large weights above 1 in a portfolio represent?

If I have a portfolio consisting of weights -12,11,3,-2,5,-5, I know that negative weights correspond to shorting but what do these large weights represent? I thought the weights are the proportion of ...
0
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1answer
63 views

Quantlib: How do I price a ZC bond using the Hull White model?

I am trying to use QuantLib to model short rate and looks like QL has some material here http://gouthamanbalaraman.com/blog/hull-white-simulation-quantlib-python.html I have been able to simulate ...
-2
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1answer
39 views

Quanto CDS- basic question-

Just wanted to know if the quanto CDS hedge each other or not, if we assume that the quanto ratio is 100%(1). Also, is it true that in stressed condition the volatility of CDS with home ccy decreases ...
1
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1answer
54 views

Why is the liquidity of ATM stock options often relatively low even if the underlying security is being traded in large quantities

I am currently trying to learn more about options trading and option strategies. One thing I have noticed recently is that for a lof of stocks I look up on yahoo finance often a very low open interest ...
0
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1answer
47 views

FX convertability modelling: have FX markets ever closed down?

I am working on modelling the risk that a bank's cash in one currency could not be converted into another currencies. This convertability risk has liquidity implacations for the asset liabilities ...
0
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0answers
24 views

Do asset return correlations have strong non-linear interactions? [duplicate]

If I compute the correlation matrix for $N$ stocks or indices, are there always expected to be strong non-linear dependencies between each asset pair-wise? Or are there only linear dependencies in ...
0
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0answers
27 views

Is there a performance measure for the entire efficient frontier?

The Sharpe ratio is an example of a performance measure for individual mean-variance efficient portfolios, regardless if they maximize the Sharpe ratio or not. The efficient frontier, however, ...
0
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2answers
70 views

Do basket options have a closed form valuation formula?

Suppose I'm simulating a European call option on a basket consisting of N stocks with slightly varying volatilities but all other parameters remain the same. From the perspective of an estimate, it ...
0
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0answers
23 views

Why do only portfolios of indices show elliptical dependence?

Elliptical distributions imply an asymmetric relationship between variables such as financial returns of different assets. I'm guessing this is mainly due to skewness, although I might be wrong and ...
0
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0answers
20 views

Secured Overnight Financing Rate (SOFR) ISIN

Does anybody happen to know the ISIN of the Secured Overnight Financing Rate (SOFR)? I can't find it anywhere on the NY Fed website.
1
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1answer
59 views
0
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1answer
64 views

How to simulate Poisson and Compound Poisson process

someone knows, maybe websites / blogs where I can find tips (preferably ready codes) to simulate the trajectory of processes? So far I only need the Poisson process and the compound Poisson process ...
2
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2answers
156 views

Exchangeability of random vector

I hope you can help me with this rather basic question that I asked myself. A random vector $(X_1,...,X_n)$ is said to be exchangeable if it has the same distribution as the permuted random vector $(...
0
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0answers
37 views

Adding Constraints to Efficient Frontier

I'm using an optimization method to solve an efficient frontier but I want to add two restrictions additionals. My optimization problem is: ...
0
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0answers
48 views

Can I build an efficient frontier using matrix algebra?

If i have a vector of expected returns $A$, a covariance matrix $C$ and a vector of the corresponding weights $W$ for each investment, is it possible to generate the efficient frontier with vector ...
1
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0answers
69 views

Good textbooks on xVA

I am looking for some good textbook to understand xVA and related calculations. Can you please suggest few? Your pointer will be highly appreciated. Many thanks,
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0answers
33 views

Optimizing Portfolio Return by Targeting Variance

I understand Markowitz and targeting returns to minimize our variance. I know this optimization problem well and its constraints. However when the reverse scenario is to be considered I get very ...
0
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0answers
43 views

Wrong way risk exotic option

I've priced an exotic option with Monte Carlo method under the Heston model. Then I want to estimate Wrong way risk. In a paper I've found this method to calculate WWR: WWR can be modeled by means of ...
-5
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0answers
22 views

Compute the fair value of an American call option [closed]

Compute the fair value of an American call option with strike K=110K = 110K=110 and maturity n=10n = 10n=10 periods where the option is written on a futures contract that expires after 15 periods. ...
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0answers
11 views

FF 3 factor Data for china

I have visited http://mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html, I found it only available for US,Is there any way to get FF 3 factor data such as SMB and HML for chinese stock ...
-2
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0answers
51 views

Covid cause and effect [closed]

Is covid related lack of demand the cause of poor job growth? Or does the poor job growth cause poverty and covid? Or, do they interact? How do I model this quantitatively?
-1
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0answers
48 views

Estimate interest rate in USA next year and GBP/USD one year forward exchange rate [closed]

Spot Exchange Rate: GBP 0.825/USD Expected Inflation rate (USA): 5% Expected Inflation rate (UK): 2% Annualized Interest rate (UK): 6% Annualized Interest rate (USA): Unknown Both PPP and IRP hold.
1
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0answers
67 views

How to implement an “Active Long Volatility” Strategy?

The research paper "The Allegory of the Hawk and Serpent" describes an asset allocation referred to as the "Dragon" Portfolio, which allocates 18% to "active long volatility&...
-2
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2answers
111 views

Why has the market gone up while earnings got pummeled? [closed]

Earnings are down 42% while the market is flat over march. Why are people assuming total economic collapse is great? Are they assuming iPhones will enter a massive growth spurt just because people are ...
2
votes
1answer
104 views

How to calculate the covariance involving Stochastic process

I was looking at some old post : Variance of time integral of squared Brownian motion I failed to grasp 2 derivations - $\text{Cov}\left(\int_{0}^{t}W^3_sdW_s\,,\,\int_{0}^{t}W^2_sds\right)$. I know ...
2
votes
1answer
81 views

PV of the Floating Side of an “Overnight Index Swap” (at the fixing Date)

I have a mathematical / theoretical question regarding the PV of an Overnight Index Swap (Floating Side) at the time of fixing. Starting from this question: How to compute Overnight Index Swap (OIS) ...
0
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1answer
34 views

Where bonds are marked v.s.where bonds are traded

We can get bond live prices from various venues, for example, BBG's CBBT prices. Usually you would get bid/ask prices. Are these prices prices that people called bonds' marked prices ? are they ...
-1
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0answers
26 views

Sample 5 minute close price with SQLite

I've got price data in the following schema CREATE TABLE quotes( utc_time INTEGER, # seconds low REAL, high REAL, open REAL, close REAL, volume REAL ); ...
0
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0answers
44 views

How can the different r2 score of an AR(1) model on prices vs. returns be explained

This is maybe a silly question, but I want to understand. As far as I understand an AR(1) model, it is basically a linear regression model with the same but lagged variable, right? However I am ...
0
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1answer
50 views

Using Integrals With Internal Rate of Return?

I'm taking a Calculus 2 course this Fall, and for my honors project, I will be using the IRR function. My professor is requesting that I figure out a way to use an integral with the IRR. The cash flow ...
0
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0answers
51 views

What python library do you use for portfolio analytics?

I have been relying on empyrical and pyfolio, which are great packages but seem to lag a little behind the newer versions of pandas. I was wondering if there are other open-source python libraries ...
1
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0answers
40 views

Can you approximate stochastic volatility processes using GARCH processes?

Let me specific. Suppose that you have the following process: \begin{align} z_t &= \sigma_t \epsilon_t \\ \sigma_t &= \sigma \exp \left( \frac{v_t}{2} \right) \end{align} where $v_t$...
-1
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1answer
48 views

Good ways to select best decision among N decisions, each with a profit/loss distribution?

I'm working on a problem where an asset owner (e.g., owner of a factory, power plant, etc.) can take a number of possible decisions (say 10). Each of those 10 decisions entails certain actions, but ...
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0answers
16 views

Discrepancy for apple insider trades between Yahoo finance and other sources

https://finance.yahoo.com/quote/AAPL/insider-transactions/ https://www.marketbeat.com/stocks/NASDAQ/AAPL/insider-trades/ Yahoo says there is insider net buying over the past 12 months. Other sources ...
0
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0answers
44 views

Difference between IR01 and DV01? [duplicate]

So I understand that both measure interest rate sensitivity, however, DV01 = duration * notional * (1 bp change in YTM) / 10000 IR01 = ?? I understand it also reflects the value when 1 bp change in ...
1
vote
1answer
33 views

TD Ameritrade “Get Orders By Query” API call documentation/help

First time to algorithm trading, python, and Quantitate Finance so apologies up front. I have noticed a lack of any good documentation for the TD Ameritrade API anywhere and especially with any of the ...
1
vote
1answer
48 views

Factor Model Regression Market Factor Statistically Insignificant After Adding Extra Factors

I am running a simple 4 factor model which includes the factors: Benchmark (Market - FortyConsumerSixtyHealthcare), SMB, HML and MOM. When I simply apply the regression to the portfolio returns and ...
-3
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0answers
102 views

Why dont people just short leveraged etfs? [closed]

You can short uvxy for 30 and buy a vix 60 option for 1. ETFs go down like 19% a month. Why dont people just get a cheap hedge and short leveraged etfs? How is something this stupid allowed to exist?
-3
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0answers
46 views

How are estimated correlation matrices used for portfolio theory?

I cant find much on this topic online but in what ways are correlation matrices used? I am assuming covariance matrices are used to minimize risk and thats how its related. Any literature on the topic ...
1
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0answers
45 views

Early exercise premium with discrete cash dividends using integral approximation

From my understanding, we have to integrate $N(d1(S_x-D,B,t))$ on both asset-price and time-space to derive the Early Exercise Premium $EEP(B,t)$ on each $t$ before the ex-date to get current early ...
2
votes
0answers
46 views

Why does the Hurst exponent pseudo code not match the Python implementation?

I am working on understanding the Hurst exponent calculation by Ernest Chan; however, the description of the algorithm does not match the Python implementation. Chan [Algorithmic Trading: Winning ...
-1
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0answers
69 views

Scaling a portfolio standard deviation with beta [closed]

If a portfolio has a beta of 0.8 and the market standard deviation is 14% what is the portfolio’s standard deviation? Do we have to convert the market standard deviation to variance first, then scale ...
1
vote
2answers
61 views

Volatility estimation based on a 60 days range

In Hutchinson et al: A Nonparametric Approach to Pricing and Hedging Derivative Securities Via Learning Network (1994) paper (link), to estimate $\sigma$ for the Black-Scholes formula, it says (p. 881)...
0
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1answer
33 views

How to quantify shares float on a stock?

I searched this before but never got further than generic definitions and and websites to look at. What I'm looking for is how to define a stock's shares float quantity. How does Yahoo Finance or ...
1
vote
1answer
92 views

CIR model. Is there a closed-form solution or even a good proxy of analytical solution?

Is there a closed-form (analytical) solution for the Cox-Ingersoll-Ross SDE \begin{equation} dr_t=k_r(\theta_r-r_t)dt+\sigma_r\sqrt{r_t}dW_t\tag{1} \end{equation} ? Notice that $\{r_t\}$ is our ...
0
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0answers
50 views

Meta-Theorem Bjork, arbitrage and completeness

In Tomas Björk's Arbitrage Theory in Continuous Time I found this Meta-Theorem: What does it mean "meta-Theorem"? That it cannot be proved and that this is only such an indication as to ...
-4
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0answers
55 views

How to deal with Non- normality [closed]

I want to run OLS regression and I found that residuals are non-normally distributed. I want to ask that is there any regression which deal with this non-normality and give the true relationship ...
0
votes
0answers
37 views

Simulating correlated stock paths to calculate VaR

So I wanted to generate a Monte Carlo simulation for two correlated assets to derive then the VaR as a quantile of the generated distributions. My code is the following, where the input parameters are ...

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