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58 views

Linear factor representation Pricing kernel APT

following Cochrane (2005) and other insights, we know that under Arbitrage Pricing Theory (Ross, 1976), if investors believe returns follow a linear multifactor structure of the form $x^i=r^f+\sum_{j=...
1
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2answers
108 views

Premium Currency and Volatility

Does the volatility of a Currency Pair depend on the currency in which the premium is paid? For example- will the Volatility of USDJPY change if the premium is paid in USD instead of JPY. Is there any ...
0
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0answers
13 views

problem of FIX 4.4 protocol tag values adapting to FIX 4.2

I have this issue that in my system we use FIX 4.4 protocol, and the FIX messages have a tag 150=H, this translates to ExecType=Trade Cancel. When this message flows to another system in middle office,...
1
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2answers
52 views

Repo sensitivity

Hope u're all doing well in this sanitary crisis. I have a question concerning repo sensitivity of basket/index derivatives regarding market making for instance. The argument to compute such a repo ...
2
votes
1answer
71 views

How to calculate dividend yield - option pricing

Hey how do you calculate the dividend rate if you want to price your stock options eg apple? Just take the dividends paid last year and divide by today's share price? This page reports 0.85% (https://...
3
votes
0answers
123 views

Estimate market price of risk $\lambda_t$

The pricing of derivatives in a risk-neutral framework often requires the input of an unobservable market price of risk. Let us assume that we observe two macroeconomic factors in the state vector $...
2
votes
1answer
47 views

Implementation of Stratified Sampling in Monte Carlo

Background I am trying to implement Monte Carlo Simulation with Stratified Sampling for barrier option under Black Scholes Model. I understand there is an analytic formula for this instrument and we ...
0
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0answers
26 views

Vasicek credit loss for real portfolio

Consider the Vasicek limiting distribution for losses of a loans portfolio. Now, consider a real portfolio, made of 10 loans each with a different rating class; eg: LN#1 - rating A+ LN#2 - rating BB ...
0
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3answers
96 views

Are mean-variance efficient portfolio weights random variables with probability distributions?

The mean-variance model outputs a portfolio weight vector whose elements are individual asset weights that sum to 1. Regardless of which portfolio along the efficient frontier is being solved, the ...
0
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0answers
25 views

Alternative Hurst Exponent methodologies?

The theory behind the Hurst exponent is that every instrument exhibits a certain mix of trending and mean reversion, where Hurst values closer to 1 represent a higher likelihood of trending and Hurst ...
0
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0answers
18 views

What are different types of response variable we can consider while developing quant model

I was trying to understand the response variables used in the quantitative trading/investing model development. This question may not look good but I searched on google and could not find results. ...
0
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0answers
15 views

How to combine different strategies in a backtest (and IRL)

I am trying to combine long and short strategies into an L/S strategy in my backtesting program. The way I have my backtester set up is it takes a signals object (...
0
votes
1answer
61 views

Over-night Black-Scholes

I have a question for Black-Scholes. It is a continuous approach, but the real market closes every day. So for the Black-Scholes, how do we count the time effect of during the time when the market is ...
1
vote
1answer
52 views

Market Maker option's pricing with reference spot

When a option's market maker receives a quote from a broker, usually the underlying spot prices is locked with a reference. Let's suppose the following example: Broker: "Buy 10k call 2800 of ABC ...
-1
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0answers
37 views

ZigZag Indicator in Python [closed]

I would like to reply a Metastock Formula (ZigZag based on Close Price) I had some similar results but not the right ones! Formula: ...
0
votes
1answer
41 views

Can a down-and-out barrier call option be priced using the Black & Scholes formula or should it be approximated?

I am trying to price of a Down-and-Out Barrier call option with leverage. When the price of the underlying asset hits a certain barrier (B), the option becomes worthless. The issuer of these options ...
2
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0answers
36 views

What put options would the Universa Tail Fund have bought?

According to this Bloomberg article, Universa was up 3,600% in March 2020, by hedging with extremely out-of-the-money puts: https://www.bloomberg.com/news/articles/2020-04-08/taleb-advised-universa-...
1
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0answers
13 views

Selecting the correct MaxLag for Granger's Causality

I have a developer who has created a python script to determine the granger's causality of several datasets that are approximately 3 years worth of daily data (approx 1100 data points for each time ...
0
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0answers
25 views

how to interpret the results of a GARCH model fit R/python

I have got the following output from a gjrGARCH model, and I need help to interpret it in order to decide whether it is already a good model and proceed with the forecast. ...
0
votes
1answer
56 views

How is CAPM used to price an asset once it has been used to derive the assets expected return?

As I understand it (correct me if I'm wrong) the theoretical price of an asset should be the present value of all future cash-flows that it is expected to yield, discounted at the risk-free rate. I am ...
1
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0answers
36 views

Difference between Vasicek and Gordy models

I'm trying to understand what Gordy [1] added to Vasicek [2] model (the core of the IRB formula of Basel Accords). Is it correct to say the Vasicek shows that the portfolio loss conditional on $Y$ ...
1
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3answers
149 views

Simulating covariance matrices with nonzero correlation

How would you simulate a covariance matrix of 1,000 stocks where each pair has nonzero correlation? I have literally no idea how to start with this. Any suggestions?
0
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0answers
15 views

In fix protocol, what's complianceId (tag 376) used for?

In one of my projects, I noticed it's saved into a database as a global_order_id, and that made me wonder if it's used as a unique identifier to follow a trade flow?
2
votes
2answers
125 views

Strike Arbitrage

In Stochastic Volatility Modelling, Chapter 2, the author derived the Dupire equation $$\mathbb{E}[\sigma_T^2|S_T = K] = 2\frac{\frac{dC}{dT} + qC +(r-q)K\frac{dC}{dK}}{K^2 \frac{d^2C}{dK^2}}.$$ The ...
0
votes
1answer
37 views

What currencies has LIBOR historically been offered in?

The Wikipedia article on LIBOR says: In 1986, the Libor initially fixed rates for three currencies. These were the US dollar, British pound sterling and the Deutsche Mark. Over time this grew to ...
1
vote
1answer
49 views

Quantlib: How do I price a bond after having built a term structure

I below are my codes using QuantLib to build a term structure What I would like to do is use that to price any hypothetical bond lets say startdate : 8 Feb 2016 end date : 8 Feb 2021 coupons : 10% ...
1
vote
1answer
91 views

Can alpha be positive if cumulative returns underperform the benchmark?

According to my portfolio analysis program (pyfolio), the alpha of the following strategy is .17 (I am assuming 17%). [Based on pyfolio documentation, alpha here is the "annualized alpha".] ...
0
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0answers
33 views

Black Scholes model calibration

the only parameter in the Black Scholes model that needs to be estimated is the volatility. Which approach is correct: Estimation of volatility from daily log returns Estimating volatility by ...
-2
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0answers
58 views

How Are Option Model Assumptions Justified In Practice

I am reading this article, and I am wondering how comments like there may be a 50/50 chance that the underlying asset price can increase or decrease by 30 percent in one period. are reconciled with ...
0
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0answers
37 views

What's the difference between ATM Vol vs ATMF Vol?

May I ask what's the difference between At-the-money volatility vs At-the-money foward Vol?
0
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1answer
31 views

Predict option IV volatility when I have stock price and previous and next day price

If I have data for IV for the previous day the next da and the stock price in intraday format , can i calculate the option price in intrday format?
0
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0answers
16 views

Price of Call & Put Spreads as Volatility Tends to Infinity in Bachelier Model

In the standard Black Scholes model, as we take volatility to infinity, the price of call spreads goes to zero and the price of put spreads goes to the difference in strikes. I ran a simulation using ...
1
vote
1answer
31 views

Is there a noticeable difference in making scatter plots and regression models with tick-data or with candle data?

I am asking this question because I want to research some variables. An example is the RSI where the current RSI is updated every tick. This means that the value of the RSI is fluctuating a lot inside ...
-5
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1answer
59 views

Expected Option Payoff equal to 0 [closed]

How much would you sell an option whose expected payoff equals 0?
0
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0answers
37 views

sensitivity of american digital (binary) options to changes in volatility skew

i am trying to think what is the sensitivity of american digitals (henceforth binary or one-touch (OT)) options to a) implied volatilities between atm and the barrier (henceforth ITM vols), b) implied ...
1
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0answers
44 views

Change of Measure for Jump Process with Drift and no Brownian motion

If on $(\Omega, \mathcal{F},\mathbb{P})$, $r>0$ is a constant and $Z_t =\sum_{i=1}^{N_t} Y_i$ where $Y_i$ are i.i.d with $E[Y_i]=L$ denotes the size of the jump and can have distributions like ...
2
votes
0answers
27 views

Complexity of using balanced-tree to model order book

I have bene researching on the best data structure to implement a limit order book. Some of the most common implementations include arrays and balanced trees. This link has a good set of references. ...
0
votes
1answer
50 views

Can you simulate an option position at a strike when that does not exist

Is there any way to simulate buy an option at a pric of x when that price is not available to buy ? If x-3 and x+3 exists, how do I buy it at price x?
2
votes
1answer
79 views

Variance-Covariance Matrix under $\mathbb{P}$ and $\mathbb{Q}$

I'd like to understand why $\Sigma$ is the same under both measures $\mathbb{P}$ and $\mathbb{Q}$. Is it an assumption or a general fact based on theoretical concepts?
0
votes
1answer
52 views

Optimising PnL on an interest rate swap

I recently just got asked the below question. Please help. "You are about to execute a zero fixed rate vs. Float rate swap under daily cash margining with a client in a normal swap rate curve ...
1
vote
2answers
80 views

Why is diversifiable risk unrewarded?

I am currently looking through some actuarial study materials (CM2, formerly CT8) in which models of asset returns are being discussed. One such model is the market model (A.K.A The single-index model)...
2
votes
1answer
62 views

What can the area under a GBM jump curve tell you

So I used matlab and simulated stock prices with the Merton diffusion model. Now I want to take the integral of the area. Now would there be any financial insight by taking the integral of a stock ...
1
vote
0answers
29 views

Can someone explain how the evaluation and execution through to post-acquisition portfolio management?

I am looking into Private Equity. As the topic says. I'm trying to understand the process behind the evaluation and execution through to post (and pre? if there is some) acquisition portfolio ...
1
vote
1answer
51 views

How to compute returns from cumulative returns in Python? [closed]

If X is a $T\times N$ pandas DataFrame of multivariate asset returns, the cumulative returns can be computed in python as (1 + X).cumprod() - 1 How can I reverse this operation so that I go ...
0
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0answers
26 views

Question on money-weighted return or IRR [closed]

At the beginning of Year 1, a fund has \$10 Million under management; it earns a return of 14% for the year. The fund attracts another \$100 Million at the start of Year 2 and earns a return of 8% for ...
1
vote
0answers
40 views

Has AlphaVantage stopped NSE stock quotes data? [closed]

I have been using AlphaVantage to get the historic data for NSE stocks (NSE= National Stock Exchange of India Ltd.). But since past 1 month the API has stopped returning data for NSE stocks. It ...
2
votes
2answers
225 views

Market price of risk on two assets

Under the assumptions of the Black--Scholes model, I read that the market price of risk of two assets $S_1$ and $S_2$ are the same, if they both follow Geometric Brownian motion driven by the same ...
0
votes
0answers
16 views

Agency Fixed Rate RMBS Yield Decomposition

I'm trying to find the best way to decompose the yield on an index of fixed residential MBS securities and want to open up the question to the community. The goal is to look at this from a ...
0
votes
0answers
29 views

FF factor benchmarks

I have a question to think about. I have constructed a portfolio of AMEX/NYSE/NASDAQ firms. After some data manipulation and cleaning I am left with some 4000 firms over the complete sample (max 1600 ...
0
votes
0answers
33 views

Commodities API data source [duplicate]

I'm trying to get commodity historical information via API. I found this https://www.alphavantage.co/documentation/ which does somewhat provide some data for stocks and others but not commodities and ...

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