All Questions

Weak schemes, such as Ninomiya-Victoir or Ninomiya-Ninomiya, are typically used for discretization of stochastic volatility models such as the Heston Model. Can anyone familiar with Cubature on ...

It is known (see for example Joshi-Chan "Fast and Accureate Long Stepping Simulation of the Heston SV Model" available at SSRN) that for a CIR process defined as : $$dY_t= \kappa(\theta -Y_t)dt+ \...

Based on the Fundamental Theorem of Asset Pricing, the risk neutral price of a contingent claim on an asset in a liquid, arbitrage free market can be determined by switching to an equivalent $Q-$ ...

I am new to asset allocation problems and have some concerns regarding the derivation of the continuous-time Kelly criterion (i.e. not the original version destined to discrete sports betting/Casino). ...

I am currently testing whether three proprietary factors - Valuation, Size and Momentum - explain cross-sectional returns. A sample of 3000 securities was tested using Fama-MacBeth two-pass ...

In Chapter 12 of his excellent book Stochastic Volatility Modeling, Lorenzo Bergomi discusses the topic of local-stochastic volatility models (LSV). As most of you are probably aware of, the idea is ...

I consider pricing and risk analysis of derivatives on dividends of the members of equity indices (such as Dow Jones EuroStoxx). There are options but I focus on futures. What are common stochastic ...

The Vasicek model for the short rate $r_t$ is given by the SDE $$ dr_t = \alpha(\beta - r_t)dt + \sigma dW_t, $$ where $W_t$ is a Brownian motion under the physical measure. I'd like to compute bond ...

I am interested in references on research regarding the consistency of economic scenarios in nested stochastics for risk measurement. Background: Pricing by Monte-Carlo: For pricing complex ...

I read a paper from Ledoit and Wolf that proposes a method to compare two Sharpe ratios and a paper from White that proposes a method to compare $n$ trading rules. My question is: Can we use White's ...

I came up with an approach for measuring data snooping, or overfitting. My question is whether this approach was published and expanded-on already, or is it new? My approach relies on the observation ...

In Goetzmann et al.'s (2007) paper, the authors derive a "Manipulation-Proof Performance Measure" (MPPM), which is a performance measure that is impervious to performance manipulation by fund managers....

I was wondering if those who used the entropy pooling code provided by Attilio Meucci had issues with the optimization procedure (especially regarding the fminunc function in Matlab). When I stress ...

I have recently seen a paper about the Boeing approach that replaces the "normal" Stdev in the BS formula with the Stdev \begin{equation} \sigma'=\sqrt{\frac{ln(1+\frac{\sigma}{\mu})^{2}}{t}} \end{...

Suppose given implied volatility quotations $\widehat{\sigma}(T_i,K_j)$ of call options on an underlying $S$ for various expiries $T_i$'s and strikes $K_j$'s. I am interested in the following problem :...

If an increasing process $X_t$ has a known Laplace transform $\mathbb{E} e^{-s X_t} = m_t(s)$, define its hitting time $\tau$ to some level $B$ to be $$ \tau = \inf\{ u > 0 : X_u \geq B \}. $$ Can ...

In a pure diffusion setting, it is a well known result that the volatility $\sigma_T$ of a fresh-start variance swap of maturity $T$ as seen of $t=0$ verifies \begin{align} \sigma_T^2 &= \Bbb{E}_0^...

I am using the Granger causality test to measure the lag between pairs of time series where it is already apparent that one is following the other. So I am not expecting this test to tell me whether ...

Is there a better model than Markov-Switching Multifractal (MSM) for detecting regime shifts in FX rates across multiple time horizons? I am especially interested in the different aspects of the ...

I know how to compute VaR with long positions using PerformanceAnalytics. What about a portfolio consisting in two equities A and B, 100 USD long positions in each, and 2 stock options for the same ...

I have issues with this problem: Let $\{X_t, t\in \Bbb N\}$ be a 2-state stationary Markov chain, with transition $M$ (and $M(1,2)\neq 0 \neq M(2,1)$), let $\{W_t, t\in \Bbb N\}$ be a strong Gaussian ...

Consider the setting of mean-variance portfolio optimisation: $n$ assets with expected returns $\overline{r}_1,...,\overline{r}_n$ and standard deviations $\sigma_1,...\sigma_n$. For a certain fixed $...

I think option chains are not represented in the best way. With more and more options products coming out and trading on the various exchanges, I see vendors struggling to keep up with a good way to ...

In Basel III the CVA VaR “is restricted to changes in the counterparties’ credit spreads and does not model the sensitivity of CVA to changes in other market factors, such as changes in the value of ...

I am following an article by Mohamed Elsaiid (MFTA) about Volatility-Based Envelopes - a quite new technical indicator he has introduced, that is being used by Bloomberg. My goal is to get a simple ...

Dow Jones and UBS publish one of the most popular commodity index families, the Dow Jones-UBS Commodity Index and its subindices. They provide a detailed manual describing the composition of the index ...

I implemented the one factor Hull White model for educational purposes and I calibrated the model from a given (made up!) yield curve: The Zero Coupon Bond Prices from this yield curve are: Taking ...

In the Ansatz section of Jim Gatheral's book Volatility Surface (page 32), he assumes $$\mathbb E[x_s|x_T]=x_T\frac{\hat w_s}{\hat w_T}$$ where $\hat w_t:=\int_0^t \hat v_s ds$ is the expected total ...

I have a few basic questions on block bootstrapping on a financial time series ('TS'). Assuming my trade universe consists of 10 stocks, I would like to create a set of synthetic prices for all 10 ...

In Pairs Trading by Vidyamurthy, on page 83 (and throughout the book), the author describes an elementary example of trading with log prices. The long run equilibrium of the basic portfolio is given ...

I have been working on getting input parameters to the Non-Linear Optimization which gives the Nelson Siegel Svensson model parameters and am carrying out the OLS regression as described in this ...

Bridgewater Associates send out Daily Observations to their clients, but I haven't found many traces of these publications online. The series started some 40 years ago by Ray Dalio, and there're just ...

I currently use the following process for bootstrapping a multivariate time series in R: Determine block sizes - run the function b.star in the np package which produces a block size for each series ...

I am interested in articles/strategies related to portfolio and inventory management for market makers and to management of order cancellation, updates of order, etc. Most of the strategies from ...

I am trying to determine the Hurst exponent of a simple Brownian motion, however, I seem to get a result that differs from 0.5. I am following the instructions given on the Wikipedia-page, and here is ...

usually the term implied volatility refers to Black-Scholes implied volatility (also Log-Normal volatility): it is defined as a quantity which when plugged in the Black-Scholes formula returns the ...

It is well-known that calibrating Heston to the vanilla market is not as easy as it seems: some parameters are "interdependent" and the objective function exhibit plateaus in the parameter space (at ...

I have implemented a stripping algorithm to extract forward volatilities from cap/floor flat volatilities for different currencies. I am however struggling a bit when implementing a method to convert ...

I have an empirical model for the dynamics of futures prices in a particular market that I have implemented using a long series of the front five contracts. (I account for the roll in my model.) I ...

Hedging American Swaption Hello, I priced an American swaption using Black model with swap rates diffusion to find the european (call) price at t. $$ C_t = (\delta \sum_{j=n+1}^{M+1} Z_t^{T_j})[R(t,...

Let X and Y be two GBM’s, they have each a univariate log-normal distribution for some time t, that is $X_t\sim{LnN(µ_x, σ^2_x)}$, $Y_t\sim{LnN(µ_y, σ^2_y})$ and $Z_t=[X_t,Y_t]\sim{ MvLnN(μ, Σ)}$ ...

assume I have following delta-term vol data from broker: ...

Background: Kupiec P. in 1995, published paper "Techniques for Verifying the Accuracy of Risk Management Models" on Journal of Derivatives, v3, P73-84, it's a Unconditional Coverage Tests designe for ...

I have a payoff that is the worst of the returns two indices: S&P500 (SPX) and Euro Stoxx 50 (SX5E). $\pi = \min \left\{\left(\frac{\text{SPX}_\tau-\text{SPX}_0}{\text{SPX}_0}\right),\left(\frac{\...

According to Dynamic Hedging: Managing Vanilla and Exotic Options (Taleb, 1997), the Parkison volatility estimator has several meaningful properties. It is defined $$P=\sqrt{\frac{1}{n}\sum_{i=1}^{n}\...

Problem Statement Trying to predict how bond auction result ( in terms of yield ) is different from its forecast (the when-issued yield ). More info:http://www.mortgagenewsdaily.com/mortgage_rates/...

In the paper Measuring Equity Risk with Option-implied Correlations, Buss and Vilkov replace the standard CAPM beta: $$ \beta_{iM,t}^P=\frac{\sigma_{i,t}^P\sum_{j=1}^N w_j \sigma_{j,t}^P\rho_{ij,t}^P}...

I've run an ARMA(1, 1)-GARCH(1, 1) model with normal density on log returns for twelve stocks. I computed the one-step-ahead out of sample forecast for daily volatility on a rolling windows for 500 ...

I use Quantstrat heavily for strategy research and optimisation. I have two Python developers about to join my team and would like to use it as an opportunity to diversify our research tools so we are ...

Hopefully, this is an acceptable question in this forum, even if it isn't analytically focused. As part of an effort to analyse the effect of different option trade structures on a portfolio, I need ...