# All Questions

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### Which objective function should I choose to minimize tracking error?

Let say I have $n$ assets and their returns over $m$ periods which are represented by a matrix $X \in \mathbb{R}^{m \times n}$, and I have some other asset with return over the same period which is ...
545 views

### Oscillatory time-series forecasting

I was wondering if this mean(160)-reverting/oscillatory time series "SUM" can be considered chaotic & forecastable to some extend short-term? http://sg.myfreepost.com/sgTOTO_analysispower.php?...
984 views

### CARA Utility function expected utility

I have been trying to undestand how the expected utility for a CARA negative exponential Utility function is calculated. In my particular case the variable has normally distributed returns. Could ...
88 views

Why does dividing daily returns by daily range eliminates fat tails and results in an (almost) gaussian distribution? And how could that distribution be exploited to enter trades?
183 views

### How do I model risks for specific short-term short calls in a portfolio with limited data?

I'm trying to do some risk analysis on a portfolio of bonds, currency, stocks and short calls. The short calls expire in approximately 15-30 days and I've only got around 20 days of pricing data on ...
295 views

If a linear sum of options is constructed such that the premium payout is zero, then does it mean that resultant greeks of the cumulated options positions will be nearly zero. For simplicity, lets ...
4k views

### Trading a synthetic replication of the VVIX (volatility of VIX)

In the same spirit as this question: Trading a synthetic replication of the VIX index. The VVIX tracks the volatility of the VIX. One cannot directly buy and sell the VVIX index and, as opposed to ...
338 views

### Discrete-time Jump-Diffusion Model

I am wondering if anybody could point me to any literature that talks about a discrete time version of the jump-diffusion model, I am aware that there is a paper by Amin (1993) that shows a discrete ...
3k views

### Detrending price data for analysis of signal returns

I'm looking to conduct hypothesis tests on some of my trading signals to see if the signal returns are statistically significant enough to falsify my null hypothesis that the signal has no predictive ...
728 views

### In Yahoo! Finance, what determines the number of decimals for a stock/index quote?

In Yahoo! Finance, we see the following quotes among others: ...
202 views

### How to properly cross-validate when optimizing SVM classification?

I'm using SVM binary classification to predict movement of NASDAQ stock prices. My question is regarding cross-validation. I will divide the training data into V subsets. Training will be performed on ...
261 views

### Can money technically flow in and out of stocks or asset classes?

For every buyer, there is a seller. Money can't 'flow' in and out of a stock, only the price changes. Is this applicable in the context of asset classes, for example, money market funds versus stocks? ...
218 views

### Rolling window Kendall's tau against APARCH(1,1) correlation

Assume you want to forecast the correlation matrix of a stocks' basket (say 15 ~ 20 stocks from different sectors); assume you need to forecast at $T$ days because you will use the forecast ouput with ...
646 views

### How to calculate probability of touching a take-profit without touching a stop-loss?

How to calculate probability of touching a take-profit without touching a stop-loss (no-dividend stock, infinite time)?
3k views

### Why the interest rate for put-call parity is not constant?

Usimg the put-call parity $C - P = S - K · e^{-rt}$ I tried to estimate the value of $e^{-rt}$, the present value of a zero-coupon bond that matures to 1 in time $t$: $e^{-rt} = (P - C + S) / K$ ...
672 views

I am trying to do some performance attribution for a few portfolios we manage. What I am trying to examine are three different sources of returns: The general asset allocation Security Selection The ...
1k views

Suppose the trade is between Index Options of two Indices X and Y which are quite similar (but not exactly). So for the equivalent strikes, one can quote option on Index X and cover in Index Y. But ...
433 views

### Combining covariances?

Consider an economy with assets with return processes $A$, $B$, $C$, $D$. Consider a weighted index with return process $I=aA + bB + cC + dD$ where $a,b,c,d$ are coefficients, and $a+b+c+d = 1$. ...
10k views

### Analyzing tick data

What are some of the commonly used techniques to analyze tick data? I am looking at tick data to see how the quotes/ mid-price evolves due to certain events in the market. Since tick data is ...
1k views

### Is it possible to “steal” financial data on publicly traded companies off the internet? Legally, I mean, what is the truth about “data” as a property

What constitutes "stealing" when it comes to publicly posted financial data? I think there are three instances of this that we can individually vet: a.) you physically broke into a location or ...
108 views

### Generating Return Streams for stress testing

There is never enough market data for testing. And sampling from user defined distribution is a hotly debated subject as which distribution does the market really go with? There are many ways to ...
3k views

I'm backtesting an algorithm for trading nasdaq stocks, and would like to take into account the spread. I am using historical data from yahoo, which contains: open, high, low, close, volume, adj. ...
11k views

### Why would a 6M LIBOR rate be significantly above 3M LIBOR, ED futures and swap rates?

Just was just looking at the various interest rates and noticed this: ...
795 views

### constructing a minimum variance portfolio

Assume a US-based company has sold something to a Norwegian company. It will receive 1M Norwegian Kroner in two months, and would like to hedge this future cash flow against currency exchange risk. ...
7k views

### When to use Monte Carlo simulation over analytical methods for options pricing?

I've been using Monte Carlo simulation (MC) for pricing vanilla options with non-lognormal underlyings returns. I'm tempted to start using MC as my primary option-valuating technique as I can get ...
938 views

### Measuring Behavioral Finance Effects in Fund/Portfolio Manager Analysis

I want to know if there are some standardized measures to evaluate how irrationally human a portfolio manager is. Are there any performance measures or scorings for behavioral finance effects? How "...
26k views

### How to calculate equally weighted market portfolio

There's two studies that test the same thing in different markets (i.e. they apply the identical methodology). They state: 1) "$R_{mt}$ is the equally weighted average stock return in the dual-listed ...
307 views

### Testing for stock market herding over short periods

The literature has well established methods for testing stock market herding over a decent time window. Are there any ways that have appeared in the literature to test for stock market herding over ...
849 views

### Running a simple alpha estimation test for statistical significance of a signal

I'm looking for some direction on testing whether a simple entry signal has statistical significance. Let's say this is my simple entry signal: Buy when some indicator has a positive slope and is ...
277 views

### Resampled efficient frontier length of simulation

I was provided with a VBA program from my lecturer that applies the resampled efficient frontier. We have an investment horizon $T$ (6 years) and he uses a multivariate normal distribution with ...
3k views

### Michaud's Resampled Efficient Frontier - Out of Sample Simulation Testing

I will be putting ALL my account points on bounty to whoever answers this question [if your answer is crap but it's the only answer, you're getting the 165 points]. You will have to wait 2 days or so ...
865 views

### Howto Calculate An Error's Partial Derivative in ANN

This is a follow-on question from this post I made, "Multilayer Perceptron (Neural Network) for Time Series Prediction", a few months back. I'm constructing a feed-forward artificial neural network, ...
183 views

### Economic contagion to individual stocks (ideas for analysis)

I'm doing my undergraduate thesis on firm-level contagion. Specifically I look at a measure of performance over a financial crisis (e.g. raw stock returns), then run cross-sectional regressions with ...
904 views

### What are the advantages of knowing the bid and ask over the best bid and ask?

I am importing historical intraday tick data from Bloomberg and I noticed the Bloomberg API allows users to import best bid, best ask, bid, and ask prices If I am backtesting a trading strategy, what ...
648 views

### Integrating log-normal

The usual log normal model in differential form is: $dS = \mu S dt + \sigma S dX$ where $dX$ is the stochastic part, so $\frac{dS}{S} = \mu dt + \sigma dX$ (1) and we normally solve this by ...
623 views

### Unsystematic/Idiosyncratic/Firm-specific volatility/variance in the market model?

I was asked to use idiosyncratic volatility as a regressor in a cross-sectional regression upon cross-sectional returns as the dependent variable. Returns can be thought of as the raw log stock return ...
650 views

### VaR backtesting with overlapping time intervals

Of course the issue here is dependence: can it be removed or accounted for (in independence tests too, which of course would be troublesome)? There's a lot of literature on regression in this setting, ...
3k views

### Comparing MVO with Resampled Efficient Frontier

My question: How can I compare the Resampled Frontier (REF) to the standard MVO frontier when I have been provided with $\mu$, $\Omega$, and don't have access to true future data to test real out of ...
399 views

### equity linked notes (bull/bear equity performance bonds)

I have to price what my lecturer calls "Bull and Bear Equity Performance Bonds". Basically there's dates $t_i \in [0,T]$, where $t_i - t_{i-1}$ is the same for all choice of $i$. On each date the bull ...
613 views

### S&P 500 P/E percentile

I am researching the past five year return for the securities in the top and bottom 10 percentile of the S&P 500 on date 5 years ago. I used Bloomberg to get this data. When I searched for the ...
3k views

### Fastest solver possible for portfolio optimization

I am using quadprog in MATLAB for very simple mean-variance optimization, with less than 100 assets. It is quite fast but if I run a strategy with daily ...
4k views

### Strategies for Liar's Poker

This question is only tangentially related to quantitative finance. Scott Patterson's book The Quants describes how a quant at Kidder Peabody figured out a strategy to playing Liar's Poker in the late ...
3k views

### What happens if a custodian bank defaults?

This question follows up my answer and the related comment to this post and in general relates to counterparty risk. When you buy a financial asset, this asset goes in your account at your custodian ...
412 views

### Government bonds with negative yield

In the recent time-series of bonds issued by (for example) Germany, Austria and France we see an unfamiliar phenomenon: negative yields. This is mainly the issue on the short end of the yield curve. ...
7k views

### Library of basic indicators

I am looking to start developing a trend following strategy and have been looking to do something in either C# or Java and wondered if there was a library or framework out there that would make ...
238 views

Is historical information on the counts of trades in single stocks, futures, options etc. available somewhere for download or purchase? If not, which ways can you think of to gather it?
770 views

### Encyclopedia of Statistical Tests

I am aware of: Encyclopedia of Chart Patterns, Encyclopedia of Technical Analysis. Question I'm wondering if there's something similar, but in the form of: "Encyclopedia of Statistical Backtesting ...
688 views

### normalized accumulation distribution

I am looking for a way to take an accumulation/distribution indicator and normalize it so I can compare a bunch of stocks with stock prices that have no relationship with each other. EDIT: This ...
I'm trying to get an intuition as to why the adjusted closing price includes a dividend adjustment: $$1 - \frac{dividend}{close}$$ I understand why the adjusted closing ...