All Questions
21,719
questions
3
votes
2
answers
421
views
Determining bet sizes given odds
Recently, I was asked the following question in an interview with a prop trading firm.
You are given the opportunity to make money by betting a total of 100 bucks on the outcome of two simultaneous ...
- 133
0
votes
0
answers
121
views
Price a contingent claim with payoff $(S_{1T}-S_{2T})^+$ at time $T$
Two stocks are modelled as follows:
$$dS_{1t}=S_{1t}(\mu_1dt+\sigma_{11}dW_{1t}+\sigma_{12}dW_{2t})$$
$$dS_{2t}=S_{2t}(\mu_2dt+\sigma_{21}dW_{1t}+\sigma_{22}dW_{2t})$$
with $dW_{1t}dW_{2t}=\rho dt$....
- 33
0
votes
0
answers
22
views
Can someone please suggest good books for Rates Structuring? [duplicate]
I am interviewing for with a bank for their Rates Structurer. Can someone please suggest literature I can go through.
0
votes
0
answers
75
views
Approximating implied price vol from implied yield vol?
I am wondering if there are any approximations that exist to convert yield vol to price vol? I am dealing options on SOFR futures, which can be quoted in yield and price (i.e. 3% put and $97 call are ...
0
votes
1
answer
96
views
price discreteness in stock market
can you explain what is meant by 'price discreteness' in stock markets? I happened to read this term in some papers but I don't know how to define it
In the paper "Do Price Discreteness and ...
- 37
0
votes
0
answers
49
views
Matching of Symbols from Bloomberg and refinitiv , for OTC derivatives trade clearing
I have been researching on this Scenario , since few days : -
Actually I have scenario , where we are dealing with OTC derivatives and BUY/SELL order can be punched in on different systems like Buy ...
- 1
0
votes
0
answers
44
views
Delta Gamma Hedging Portfolio of Multiple Options Derivation
I am trying to make the correct derivation of the Delta Gamma Hedge of a portfolio composed of a multi-option strategy, like a Straddle with the following parameters Long 1 Call K = 100, Long 1 Put K =...
0
votes
0
answers
34
views
Standard practice to round values in ARM loans
I have an application that calculates payments schedule of ARM (Adjustable Rate Mortgage) loans, where these loans are in the books of commercial banks.
It seems to work fine, with the exception of ...
- 50
0
votes
0
answers
103
views
Pricing of OIS on USD at t=0
I am tormented concerning the pricing of an OIS (USD). My concern is how do we find the rate of the fixed leg using Federal Funds rates, at t=0 since these are not known at that time.
Thank you
- 1
0
votes
0
answers
52
views
How to correctly calculate the current market cap
I'm having a trouble with the question which may seem very easy at a first sight. Basically, to calculate a market cap we just need to take the current price and multiply it by the number of ...
- 101
0
votes
0
answers
23
views
Model/Formula for normalized trades per day over long term growth? [closed]
Trying to do a project to best model trades per day of a given stock (MSFT) but the exponential model using Log and sklearn linearregression() is giving poor results. I want to use this to predict the ...
0
votes
1
answer
127
views
How can I price this option? [closed]
In the Black-Scholes model, I want to price the so called Butterfly option, where the payoff $P(x)$ is the following function: $P(x)=0$ if $0\leq x\leq 40$, $P(x)=x-40$ for $40\leq x\leq 60$, $P(x)=-x+...
0
votes
1
answer
115
views
Bumping forward rates in Quantlib for Bartlett SABR greeks
This might be a naive question, but in order to compute the Barlett vega: $$ \frac{d\sigma}{d\alpha} + \frac{d\sigma}{dF}\frac{\rho F^\beta}{\nu}$$ (for forward rate $F$, implied vol $\sigma$, and ...
- 1,231
2
votes
0
answers
39
views
Pricing barrier options under risk neutral measure
I think this must be a really stupid question but I cannot see what I am missing.
Let's assume we're pricing some barrier option under Black -- Scholes model. Under risk neutral measure, the drift $\...
- 21
0
votes
0
answers
61
views
How do you interpret the portfolio DV01?
I am having trouble understanding the active dv01 of a portfolio? If the active dv01 of a portfolio
is -10,000, what does that mean, all else equal? And what are different ways of increasing dv01 of a ...
1
vote
3
answers
235
views
Market Makers how can they sell an asset they don't have
I'm having trouble grasping the operations of market makers. For example, consider Bank XYZ, which has set a bid-ask spread for T-Bond A at $90.1 (bid) - 90.2 (ask)$. Suppose a client of the bank ...
- 11
1
vote
0
answers
27
views
Subportfolio optimisation and asset clustering with maximum cluster cardinality constraint
Assume that $N \in \mathbb{N}$ assets are given, but the portfolio optimisation algorithm can only compute portfolios with $m<N$ assets. To compute a portfolio, I would like to cluster the $N$ ...
- 66
0
votes
0
answers
16
views
Barrier Reverse Convertible on interest rate
I'm trying to find the price of an barrier reverse convertible on interest rate - https://structuredproducts-ch.leonteq.com/isin/CH1251797945. I have simulated the underlying interest rate by Vasicek ...
0
votes
0
answers
30
views
Singular Perturbation in Hagan's 2002 SABR paper "Managing Smile Risk"
I'm reading Hagan's 2002 paper Managing Smile Risk originally published on the WILMOTT magazine, and got something confusing.
The set up: $P(τ,f,α,K)$ is the solution of the problem as in Equation (A....
- 2,211
0
votes
1
answer
63
views
Replication of the payoff of a chooser option
With numerical examples, how can the payoff of a chooser option be replicated with European call and put options?
- 3
1
vote
1
answer
108
views
Trade Impulse signal
https://blog.headlandstech.com/2017/08/03/quantitative-trading-summary/
In reference to the link, under Market Microstructure Signals, the so called "Trade Impulse" signal was mentioned .
...
- 25
1
vote
1
answer
99
views
Multi level micro price
Typical micro price formula uses the top of book depth (i.e. level 1 depth):
Microprice = (BidSize x AskPrice + AskSize x BidPrice) / (BidSize + AskSize)
But how does one actually include more depth ...
- 25
0
votes
0
answers
53
views
Through-the-cycle rating transition matrix
Suppose we know the observed transition matrix for annual migrations between credit ratings, $T_{ij,t}$, for $N$ years. How is the through-the-cycle (TTC) transition matrix defined?
Sometimes the ...
1
vote
0
answers
80
views
Maximising sharpe of portfolio with equal weights
I want to maximise $\frac{w^T\mu}{\sqrt{w^T\Sigma w}}$ with $w_i$ either 0 or $\frac{1}{\#\text{nonzero weights}}$.
This is the same as maximising $\frac{\tilde{w}^T\mu}{\sqrt{\tilde{w}^T\Sigma \tilde{...
0
votes
0
answers
34
views
Asian option equation
Im trying to find an equation for the discrete geometric asian option put price and are seeing a lot of differencies. Any recommondations for good papers??
I also tried to proof the call price from ...
- 1
1
vote
1
answer
105
views
Find the right module for CDI DI BRL swaps valuation Quantlib
I'm trying to find a way to price BRL CDI Swaps with Quantlib but I can't find any solutions so far - so I was wondering if anyone encountered this issue:
I don't see any solution on Quantlib. I ...
- 21
1
vote
0
answers
41
views
How to adjust an assets position to target volatility in a long-short portfolio?
I have a portfolio of weights $\mathbf{x}$ where some positions in $\mathbf{x}$ are short s.t. $\Sigma_i x_i=0$ (dollar neutral).
The standard way to estimate the volatility contribution per asset is ...
- 405
1
vote
0
answers
32
views
What is the meaning of the asset risk contribution in a long-short portfolio?
If I have a portfolio of weights $\mathbf{x}$ and the covariance matrix of asset returns $\Sigma$ then the volatility contribution per asset is given as standard $\mathbf{x}' \Sigma$. For a standard ...
- 405
0
votes
0
answers
54
views
Fitting volatility using SABR
I have been working on generating a volatility surface for options on SOFR futures with the help of the SABR model. I am running into some trouble for low strikes in particular, in that I cannot seem ...
0
votes
0
answers
31
views
ConstNotionalCrossCurrencyBasisSwapRateHelper in QuantLib doesn't give expected result
I'm trying to bootstrap to get discount curve based on cross currency basis swap using ConstNotionalCrossCurrencyBasisSwapRateHelper in QuantLib. As a test, I tried to bootstrap the discount curve ...
- 1
0
votes
0
answers
53
views
futures exposure targeting (spot vs futures price)
I'm confused over if I should use spot or futures price when targeting a certain exposure. There are many websites that state you should use the contract size * futures price. Other websites, however, ...
- 25
0
votes
1
answer
84
views
What do the existence and parameters of an efficient investment tell you about the value of a risk-free return?
I'm working on an unassessed course problem,
Consider the following risky investments \begin{matrix}
\text{name} & \text{expected return} & \text{standard deviation of return} \\
A & 9\% &...
- 105
1
vote
0
answers
26
views
I am trying to compute the the tail of a future roll using the ratio of forward dv01
I am trying to compute the the tail of a future roll using the ratio of forward dv01, per the link CME: Calendar Spreads with Tails : I am trying to compute the the tail of a future roll using the ...
- 11
0
votes
1
answer
75
views
Calculating Ex Post Sharp Ratio's for decile portfolios
Dear Stack community,
I hereby would like to ask what the correct calculation is for calculating Ex Post Sharp Ratio's. If I am correct, I already know that I am supposed to divide the average excess ...
- 45
0
votes
0
answers
21
views
Why does swap fair rate not change 1:1 with shifted curve? [duplicate]
I'm trying to calculate things like dv01 for OIS interest rate swaps by shifting the swap curve (by 100bp say) and revaluing swaps on the shifted curve. However, I noticed that the swap rate (QuantLib'...
- 1
1
vote
0
answers
99
views
Why is Feynman-Kac formula applicable in Burgard-Kjaers PDE paper?
In the paper Partial Differential Equation Representation of Derivatives with Bilateral Counterparty Risk and Funding Costs by Burgard and Kjaer, they say we may formally apply the Feynman-Kac theorem ...
- 390
0
votes
0
answers
59
views
Determine expected geometric return from Sharpe ratio
I'm trying to calculate the expected annual geometric return, given that I'm provided with an annual Sharpe ratio (0.5), the yield on a 3-month T-Bill (5%) (using this yield as a proxy for the risk-...
- 118
0
votes
0
answers
37
views
Predict a company business classification
I am trying to predict whether companies belong to a universe considered by an index provider for a particular thematic index using natural language processing techniques.
In this particular example, ...
- 21
0
votes
0
answers
37
views
If investors are risk-neutral, should the (equity) risk premium be zero?
I looked up ChatGPT and they stated that the (equity) risk premium should be zero for a risk-neutral world. The definition of a risk-neutral investor is that one is indifferent between additional or ...
- 559
0
votes
0
answers
39
views
Order book question
This is a really simple question but I can’t figure it out. I was given this definition for trades in an order book. “A bid and an offer whose prices are the same or cross will pair, resulting in a ...
- 1
1
vote
0
answers
66
views
Calibration of $\rho$ in the heston model
When calibrating the Heston model, the gradient of the price of the call/cost function wrt $\rho$ (correlation between $S$ and $V$), is a lot less than the other parameters like $v_0$ and $\bar{v}$. ...
0
votes
0
answers
36
views
Vasicek model calibration to bond prices or rates (no swaptions)
I need to calibrate Vasicek's model $dr_{t} = a(\theta - r_{t})dt + \sigma dW_{t}$ in a market with no swaptions. I was thinking in estimating $\sigma$ with historic data, but I'm in the doubt with ...
0
votes
0
answers
33
views
Estimating implied probability based on prediction betting odds
I am attempting to estimate prediction betting market efficiency for a project, and I am hoping for assistance with a couple of questions.
The prediction market makers add a commission to the betting ...
1
vote
0
answers
67
views
Hagan's 2002 SABR paper "Managing Smile Risk" on Dupire local vol model
I'm reading Hagan's 2002 paper Managing Smile Risk originally published on the WILMOTT magazine, and got something confusing on his comment on Dupire's local volatility model.
The set up: Consider a ...
- 2,211
1
vote
0
answers
71
views
SOFR futures options margining
If we consider quarterly (or serial, or mid-curve) SOFR options, traded on CME. Are those options subject to margining? It is clear to me that their underlying (say, 3M SOFR futures) is margined as ...
- 111
1
vote
0
answers
78
views
Climate Models in Banking - what modeling are banks currently doing?
I'm mostly interested in knowing what banks are doing in Ireland and other Western European countries.
I know, from Google searches, that banks are currently doing climate risk stress-testing, but I'm ...
3
votes
0
answers
139
views
Is Bloomberg's global equity data sufficiently high quality that it can be used for backtests?
I have used other data sources like CIQ, CRSP / Compustat, and Refinitiv. While each has issues, the data were sufficiently high quality that reasonably reliable backtests could be run. I may need to ...
- 131
1
vote
0
answers
80
views
Efficient Method of Moments(EMM) for Stochastic volatility model
We are attempting to calibrate the parameters of the Heston model via EMM on historical stock price returns. However, we are first trying a simple stochastic volatility model using EMM.
We have come ...
0
votes
0
answers
22
views
How to obtain a complete list of US stock tickers using Alpha Vantage?
I am trying to obtain a complete list of US stock tickers using the Alpha Vantage API. I have obtained an API key from Alpha Vantage, but I am unsure of how to properly make the request to get the ...
1
vote
0
answers
63
views
A question about Hagan's 2002 SABR paper "Managing Smile Risk"
I'm reading Hagan's 2002 paper Managing Smile Risk originally published on the WILMOTT magazine, and got something confusing.
The set up: Consider a European call option on an asset $A$ with exercise ...
- 2,211