# All Questions

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### Model-implied yield spread on corporate bonds

While using Merton (or any other) model, is the model-implied yield spread on bonds greater than actual yield spread? And is it possible to estimate actual probablities of default?
2k views

665 views

### Why are regressors squared and not ^1.5 or ^2.2 or ^2.5?

When a researcher in economics or finance wants to apply a linear regression model but suspects a non-linear relationship between one of the regressors and the dependent variable, it is typical to ...
596 views

### GBM 3d plot with R

I want to plot the density of the GBM in a 3d plot. So I have on one axis the stock price, on the other the time and on the z axis the density. At the end I want to produce this graph. The formula I ...
2k views

### How does one estimate theta in the Ho-Lee model from a yield curve?

I have a yield curve constructed using linear interpolation with data points every 3-months for US treasuries. I would like to use that calibrate a Ho-Lee model, but I can't wrap my head around how ...
2k views

### How to improve the Black-Scholes framework?

Since the distribution of daily returns are obviously not lognormal, my bottom line question is has BS been reworked for a better fitting distribution? Google searches give me nada. The best dist I'...
5k views

### Is there a piratebay for data(bases)? (here, talking about historical financial data) [closed]

I would like to, for example, access (and later, upload), for example, historical financial data for the S&P500. If a piratebay for databases existed, maybe we could freely share information that ...
253 views

### desk's performance

I need your point of view in evaluating the monthly performance of a desk. I have the daily credit risk capital requirement (A); the net banking income or GNP (B). What is the best measure of the ...
715 views

### Bootstrapping first, then data mine?

I posted this on Cross Validated a month ago, but I didn't get any answers. Sorry for the second post! I'm wondering about the whole process of testing/data-mining for a strategy and THEN testing on ...
1k views

### What are current interest rates on senior/junior/mezzanine loans for e.g. real estate developers?

For a case study I have to work on for a university course, about a real-estate-development project, I need to simulate the financing with different proportions of equity (40%), senior loan (35%), ...
4k views

### Treasury Bond Yield Curves in R

Does anyone know if I can access interest rates series from the treasury using R? I tried yahoo! Finance and it doesn't seem to have this kind of information.
805 views

### Black-Scholes American Put Option

Here is my question: This is a question about Black-Scholes model, but it may be applicable to more complicated models. Throughout the discussion, the strike price $K$, interest rate $r$ and ...
422 views

### Does entropy pooling apply to distributions with time-varying drift?

I have a returns process that is drawn from a normal distribution with a nonlinear time-varying drift, so I was wondering if the entropy pooling method still applies or if I need an invariant ?
589 views

### Is making a bid/ask offer a good way to lower the spreads?

I have written an algorithmic trading program which relies heavily on low spreads in the 0.1-0.3 PIP region. I was now wondering if it would be a good idea to place bid/ask offers instead of limit ...
86 views

### Changes to option valuation for dollar-pegged underlying

In Russia, options on futures on the RTS index are priced in points instead of currency, with points being directly related to the value of the US dollar such that, for example, if the dollar rises, ...
3k views

### How do I estimate the parameters of an MA(q) process?

It is relatively easy to estimate the parameters of an autoregressive $AR(p)$ process. How do I do with a moving average $MA(q)$ process?
4k views

### Why do ATM call options have a delta of slightly bigger than 0.5 and not 0.5 exactly?

From the formula of the delta of a call option, i.e. $N(d1)$, where $d_1 = \frac{\mathrm{ln}\frac{S(t)}{K} + (r + 0.5\sigma^2)(T-t)}{\sigma\sqrt{T-t}}$, the delta of an ATM spot call option is ...
1k views

### How to calculate discounted inflation and growth?

Given the nominal bond yield and the inflation index bond yield (earning yield), how would one calculate the discounted inflation rate (discounted earning growth rates)? These two factor seems to ...
355 views

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### Performance Stats of Pairs Trades

This is something I've been thinking about for a while but I can't reach a clear conclusion. When we calculate, for example, the profit factor for a pairs trading strategy, do we treat each pairs ...
58k views

### How to simulate stock prices with a Geometric Brownian Motion?

I want to simulate stock price paths with different stochastic processes. I started with the famous geometric brownian motion. I simulated the values with the following formula: R_i=\frac{S_{i+1}-...
241 views

### Measure change in a bond option problem

This is not a homework or assignment exercise. I'm trying to evaluate $\displaystyle \ \ I := E_\beta \big[\frac{1}{\beta(T_0)} K \mathbf{1}_{\{B(T_0,T_1) > K\}}\big]$, where $\beta$ is the ...
410 views

### Question on OptionMetrics: when are adjustments for discrete dividends needed?

Bakshi et. al. (1997) analyzes the empirical performance of some alternative option pricing models. I am interested to do this as well - hence applying different models - but I am unsure how to handle ...
823 views

### Calculating portfolio VaR for (custom) leveraged products

I have been searching online for a few days regarding how to calculate portfolio VaR for a portfolio consisting of leveraged products - but so far, I have not been able to come up with anything ...
2k views

### portfolio optimization from empirical return distributions

I'd like to do a portfolio optimization of a set of ETF's but want to avoid traditional problems with normality assumptions in returns etc. Are there techniques that let me sample 'draws' from the ...
673 views

### When gains are made: Overnight or during trading hours? What is the connection to volatility?

Falkenblog reports an interesting finding: All of the stock returns since 1993 are from overnight returns and cross-sectionally, volatility receives a positive overnight risk premium, a negative ...
475 views

### What is the canonical reference for Minimum Variance Portfolio's uniqueness?

I am writing a white paper in which I am trying to compare a strategy to different well-known - and classic - asset allocation optimization approaches. One of the methods I chose is the minimum ...
138 views

### Proxy for a trigonometric angle function [closed]

You can't calculate an actual/real angle with the sine function with discrete market data. I need a substitute value for inputs that require an angle value. If you're only calculating the angle ...
9k views

### What does “Inst. Own” mean on Google Finance, and how can AOL be 103% “Inst. Own”'d?

https://www.google.com/finance?q=NYSE%3AAOL&ei=yZCpUODEMsKqqgHPzQE Previously, I assumed "Inst. Owned" meant the percentage of the company's stock that was owned by the company (viz. not floated),...
1k views

### Why would a trader quickly flicker an order immediately preceding a tick away?

The Setup Assume the inside market is $15.15 \times 15.16$ and there is a very large bid order imbalance. For example, 30,000 shares bid across 100+ orders, 200 shares offered across 1 order; however,...
767 views

### Why is random trading minus transaction costs not zero expected value?

Somebody was telling me that if you buy randomly and assuming no transaction costs in todays market place, you wont make money 50% of the time and lose 50% of the time because of adverse selection. Im ...

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