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48 views

Adapt SABR Hagan/Obloj model from swaptions to treasuries options

I am a young intern in a brokerage company and I am currently working on developing a new pricer. I would like to encode a skew-visualisation tool and the best way that appeared to me is the SABR ...
0
votes
0answers
16 views

How to Forecast Quarterly Dependent variable with Monthly Independent Variables with Random Forest

I want to forecast US GDP(quarterly variable) using 100+ monthly financial and macro variables with Random Forest. My issue is that I do not quite know how to interpolate the quarterly data into ...
2
votes
1answer
127 views

Backshifting Price Timeseries with Memory Preservation

In Advances in Financial Machine Learning the author makes a case for fractionally differentiated price returns in chapter 5. The reason is to both maintain memory and to generate a stationary time ...
2
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0answers
66 views

non gaussian distributions with higher moments and time scaling properties?

If we assume a portfolio comprised of n asset classes, whose log returns can be modeled with a distribution. I am interested in finding a distribution that: incorporates higher moments (skewness and ...
0
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0answers
22 views

Multiple independent variables (returns) on common dependent variables (Fama-French risk factors): Efficiency and data structure in Python

As a common topic in factor investing, I wish to implement the well-known Fama-French regressions on several stocks (+2000 IDs). In a deep sense, factor regressions tell how the right hand (returns) ...
2
votes
2answers
67 views

Why in Fama-French factor model relative market capitalization and book-to-market aren't used directly for predicting return rate?

Fama and French use the following formula for predicting stock returns \begin{align*} r=r_{riskfree} + \beta_1(r_{market}-r_{riskfree})+\beta_2(SMB)+\beta_3(HML) \end{align*} which basically means ...
3
votes
1answer
113 views

Likelihood ratio and pathwise sensitivity method for coupled SDEs

I have two coupled SDEs \begin{align*} dS_t=rS_tdt+V_tdW_t^{(1)},\\ dV_t=aV_tdt+b(V_t)dW_t^{(2)},\\ \end{align*} where $W_t^{(1)}$ and $W_t^{(2)}$ are independent Brownian motions, initial input data ...
1
vote
0answers
57 views

What is “risk-hit ratio”?

In this article https://www.risk.net/awards/7741391/flow-market-maker-of-the-year-citadel-securities describing Citadel Securities the market maker, it says The firm’s electronically executed US ...
0
votes
1answer
58 views

Breakeven Inflation Rate vs Actual Inflation Rate Study

I am relatively new to the realm of TIPS and inflation rate and am working on a study. I wish to investigate the correlation between the breakeven inflation rate for (5Y, 10Y, 20Y) TIPS and actual ...
0
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0answers
59 views

What is the relationship between Vanna and Gamma?

I'm trying to build a crude model for the effects of delta hedging on major indices like the S&P 500. My background is more in pure mathematics so a lot of this stuff is new to me. That said I ...
0
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0answers
23 views

QuantLib-Python Libor Market Model

It appears that QuantLib-Python does not include Libor Market Model, although the C++ version has it. (https://rkapl123.github.io/QLAnnotatedSource/d5/d8d/class_quant_lib_1_1_market_model.html) Is ...
0
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0answers
60 views

Understanding GARCH

I asked this on stats.stackexchange but I realized this might be a better place to ask this question. I am new to finance and volatility forecasting and am trying to understand how garch model works. ...
1
vote
1answer
52 views

Reason why a European binary call should be worth half of its American counterpart when driftless and out-of-the-money

Exercise 11 of chapter 8 of Mark Joshi's "The concepts and practice of mathematical finance", asks to compare prices of an American and a European digital (binary) calls when out-of-the-...
2
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0answers
185 views

Implementing a Variance Swap Hedging in R

I am trying to compute a hedge for a variance swap, in a simulation. Fo that I am using the following equation:\begin{align*} E^Q\bigg(\sum_{i=1}^n \bigg(\frac{S_{t_{i}}-S_{t_{i-1}}}{S_{t_{i-1}}}\bigg)...
0
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0answers
40 views

A question referring equites and beta

Let's say stock A has a beta of 1.32 and stock B has a beta of .8. Is it okay to say that, stock A moves 32% more than the market? And Stock B moves 20% less than the market?
2
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0answers
78 views

Random Walk Theory vs. Quant Trading

I am quite new to random walk theory so please excuse my rather simply put question but I am wondering how can quant trading desks and other algorithmic trading firms exist if there is the random walk ...
1
vote
1answer
73 views

Cocycle Condition for FX and SABR

I was wondering whether SABR model (or some of its modifications) is actually used by practionarers. Also, if one models the FX forward with SABR, would the cocycle condition be satisfied? That is, if ...
3
votes
2answers
134 views

What is the Q-dynamics of affine bond prices when r is described by the given model?

Assuming an Affine term structure model, where bond prices arebe defined as: $$P(t,T)=\exp({A(t,T)-B(t,T)r_t)}$$ and describing the Q-dynamics of the short rate according to the model: $$dr_t=ar_tdt+\...
2
votes
1answer
88 views

Error in has.Ad(x) : object 'BRK' not found

I am trying to merge a list of adjusted closes of a multitude of firms for my research on ESG, in relation to risk/reward. None of the firms seem to have a problem, except for the Berkshire Hathaway ...
0
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0answers
23 views

Buy-and-hold raw and abnormal returns

This may seem like a silly question, but I have trouble understanding the concept. I am performing regressions where the dependent variables are raw buy-and-hold returns and abnormal buy-and-hold ...
1
vote
2answers
499 views

When looking for arbitrage among a LARGE amount of assets, is there an optimal way?

Looking for arbitrage opportunities when looking at 3 pairs of related currencies is easy. However if we assume that we have a large amount of currencies, is there an optimal way to swipe through them ...
1
vote
2answers
121 views

What is wrong in my Heston model's code

I am trying to code a heston model pricer.However,it seems correct at the beginning but when inserting extreme data I retrieve myself with negative probabilities or negative prices. There is the code :...
4
votes
1answer
112 views

forward variances under rough bergomi

I have seen in several papers on rough volatility using the following expression for the forward variances $$ d\xi_t(u) = \xi_t(u) \eta \sqrt{2H} (u-t)^{H-1/2}dW_t $$ Can anyone explain to me how this ...
5
votes
2answers
139 views

Expectation of integral where one of limits of integration is a random variable

Is it correct to write \begin{equation} E_t \int_0^{X_T} f(z) dz = \int_0^\infty \left(\int_0^x f(z) dz \right) p(x)dx \,\,? \end{equation} Here $X_T$ is a positive random variable with density $p(x)...
0
votes
0answers
31 views

How to calculate the longest expected losing streak for a system that trades all the index members simultaneously?

For a trading system that trades only one security we can easily compute the longest expected losing streak using this formula: where: n is the number of trades, ln is natural logarithm, P is the ...
0
votes
0answers
46 views

Is alpha vantage api for fundamental data reliable?

Can anyone speak to the reliability of the Alpha Vantage (AV) api for fundamental stock data? I have tried for a couple of stocks to get balance sheet data, and it seems close to accurate but I feel ...
2
votes
1answer
53 views

Simplifying the expectation of the product of two stochastic integrals

Let $f(t, \omega), g(t, \omega)$ be functions that are independent of the increments of the Brownian motion $w(t, \omega)$ in the future. That is, $f(t, \omega), g(t, \omega)$ are independent of $w(t +...
0
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0answers
25 views

How does one obtain a realistic range for the VIX using its volatility if it is at its multi-year low?

Suppose the VIX index is at a hypothetical multi-year low of 15, yet the volatility of VIX has a reading of 100. If one were to surmise from this volatility of VIX a range for the VIX over the coming ...
0
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0answers
36 views

correlation between credit spreads and index returns [closed]

Not quite from stat background so asking the question! I believe correlations are calculated on returns. However if I have time series of credit spreads and an equity index returns. How would I get ...
3
votes
1answer
136 views

Derivative of Stochastic Integral

I am trying to take the derivative of the following stochastic integral, $$d\left(\int g(S_t) dS_t \right),$$ where $dS(t) = \sigma S(t) dW_t$ and $g(.)$ is some (smooth) deterministic function. My ...
1
vote
1answer
70 views

How to compute a portfolio PnL and Sharpe?

I understand this is quite the common question but I haven't been able to understand this concept through the previous posts. My situation is that each day, I'm interested in buying/selling one ...
1
vote
1answer
95 views

negative gamma value for gjr-garch output

I was wondering if anyone could tell me if my model is completely incorrect as I haven't been able to find anything online for this. I am running a Gjr Garch model to measure volatility in gold ...
0
votes
1answer
41 views

Generalized Linear Mixed Model (GLMM) for the probability of default of corporates

I work in the financial industry and we want to implement an internal rating model for our clients (think corporates large or mid , banks etc. some listed on an exchange some others not). We want to ...
0
votes
0answers
23 views

How to calculate Vega using Dupire and MonteCarlo engine with Autograd?

I have implemented a Monte Carlo pricer engine which includes the volatility local model based on Dupire formula. For now I can value several (european) options which I used to validate the model, but ...
0
votes
1answer
53 views

Pandas rolling mean not working properly [closed]

I have the following dataframe df on which I want to compute a 4-window moving average : ...
0
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0answers
25 views

On P and L of backspread

Does anyone know how the P and L on put backspread changes as a function of implied volatility and longer expiration? One wants as much gamma as possible as far as I understand, in turn being related ...
1
vote
0answers
56 views

Regime-switching interest rate in Black-Cox model

Consider a modification of the time-homogeneous version of the model by Black and Cox (Journal of Finance, 1976). The firm value $V$ follows a Geometric Brownian motion: $$dV/V = \mu dt + \sigma dZ$$ ...
3
votes
1answer
99 views

What is the Radon-Nikodym derivative in the Heston model?

It is clear to me that $$ \frac{dQ}{dP} = e^{-\lambda W_T-\frac{\lambda^2}{2}T}$$ is the Radon-Nikodym derivative that defines the change of measure in the framework described by Black and Sholes. But ...
1
vote
1answer
42 views

Question on boundary conditions when using Finite Difference

I have two questions appearing to me (they are not related directly to each other). My first question is about boundary conditions when using Finite difference methods. There are two ways to do it: a)...
-1
votes
1answer
85 views

Survival probabilities starting from CDS spreads

How is that possible to get survival probabilities starting from CDS spread? Could you please provide me with a demonstration? What is more, is that true that CDS Zero type is necessary so as to get ...
0
votes
2answers
61 views

decomposition of yields into global and local components

It is reasonable to assume that global yields move in tandem to a certain extent, driven by a global and a local component. Are there any ways to separate the two, beyond the obvious (regress the ...
2
votes
0answers
149 views

How to compute standard errors of an estimator with antithetic variates?

I'm pricing American options using Longstaff and Schwartz Least square method. When using the following Python code, I obtain nearly the same prices and standard errors as in the Valuing American ...
2
votes
0answers
100 views

Reading Recommendations - Quantitative Investment Strategies from a “genuine” quant viewpoint

I recently stumbled the lecture notes of Prof. Avellaneda on Quantitative Investment Strategies (near the bottom of this page). The exposition is highly structured and rigorous, but I am missing in ...
0
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0answers
25 views

Non-fixed stationary “conversion”

Dear users of StackExchange, I was wondering why the log returns of a fixed period of time is such a common use in "transforming" a time series into a more stationary one? I thought that ...
6
votes
2answers
587 views

Relationship between Vega and Gamma in Black-Scholes model

my question is the following one: I don't manage to prove that, in Black-Scholes model, single-signed Gamma options have values that are monotonic in the volatility. I am looking for an exhaustive and ...
0
votes
0answers
21 views

Is the market price of risk deterministic or stochastic in the Heston model?

I am recently digging into the Heston model and I have noticed that every author refers to the market price of risk simply as $\lambda$, or sometimes it is more clearly specified to be bi-dimensional ...
0
votes
2answers
113 views

Use of CNY and CNH derivatives

I was wondering what are the reasons why investors use USDCNH forwards vs NDF on USDCNY? Do you usually pick CNH for trade reasons, while CNY more for speculation as these are USD settled?
1
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0answers
39 views

Strange efficient frontier, when I try to calculate BTC & ETH ratios using MPT(Modern Portfolio Theory) [closed]

The 10k Monte-carlo simulations all fall on the same line, instead of a proper scatter plot.. Not sure what I'm doing incorrect. It all works fine, if I include Monero in the mix. Any pointers ? I'm ...
1
vote
0answers
33 views

Exchange order matching system/core for local testing

I am looking for a service that can be deployed locally or connected to it and would emulate the order matching system of exchange (a.k.a matching core). I remember, that I have seen on GitHub repo, ...
0
votes
0answers
46 views

Solution of the following PDE using European put option

I'm reading some articles about PDE and I found the following PDE, with $q_1,A >0$: $g_t(t,y)+ \beta^2yg_y(t,y)+\frac{1}{2}\beta^2y^2g_{yy}(t,y)-q_1 g(t,y)=0 \quad (t,y) \in [0,T), \times (0,+\...

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