All Questions
21,718
questions
1
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118
views
Determining the floating rate for an interest rate swap
I'm trying to price an Euribor 6M Swap and comparing this to Bloomberg's swap manager. However, I'm having some doubts on my implementation of getting the reset rate for the floating leg. In Bloomberg ...
- 11
0
votes
1
answer
101
views
What is "position" when referring to the holders of a bond?
A bond has a "holders" list, available on Bloomberg. I can see "held amount" of each party in USD, but what is the meaning of "position"? Is it a USD value (if you ...
- 101
0
votes
0
answers
65
views
Lend $ synthetically at higher yield using ¥: it works but why?
The Trade is:
You have USD 100m funding
Swap USD for YEN equivalent at today's spot, agree to swap back in 12 months at the USD/JPY forward rate
With the YEN buy a 12 months Japanese Government bond
...
- 527
0
votes
1
answer
110
views
Quantlib FRA and interpolated rate in Swaps vs BBG valuation
I am building a CZK swap pricer on quantlib, and I am trying to understand my differences with Bloomberg pricing.
I believe the way I set up my FRA is wrong, the reason is because even though I match ...
- 21
0
votes
1
answer
59
views
Are instantaneous short rates compatible across models?
If I calibrate the Vasicek's yield curve to the Nelson-Siegel's (NS) yield curve, can I assume that $r_V(0) = r_{NS}(0) = \beta_0 + \beta_1$ or not?
NS short rate:
$r_{NS}(S) = β_0 + β_1 e^{-S/\tau} + ...
0
votes
0
answers
82
views
Implied vs. Realized Vanna in Risk Reversal
I am trying to understand how to build an implied-to-realised Vanna trade using a risk reversal, as shown in the Hull's paper:
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3968542
I have some ...
1
vote
2
answers
156
views
Implied volatility greater than realized volatility at all strikes?
It is usually stated that the implied volatility is statistically generally --- not always --- greater than the realized volatility. It seems this statement is made with regard to the implied ...
- 2,746
1
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0
answers
49
views
For each day I have volatility for country A and B. How to test if volatilities are different? [closed]
I have a dataset with 10Y benchmark government bond volatilities of two countries.
So, my data looks like this:
Date, Volatility5day_A, Volatility5day_B
The volatility measure itself is from Bloomberg ...
- 43
2
votes
2
answers
144
views
Testing as in Fama & MacBeth vs. comparing models as in Cochrane's lecture notes
Testing a model against its extension as in Fama & MacBeth (1973)
Fama & MacBeth (1973) tested the CAPM against an alternative that the dependence between the expected excess return $E(r_{i,t}^...
- 2,638
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votes
0
answers
83
views
Should xccy basis be added before bootstrapping (to swap curve) or after bootstrapping (to zero curve)?
I am trying to bootstrap a GBP zero curve off of a GBP swap (par) curve inclusive of xccy basis (vs USD). Say I have my two curves (swap and basis) - would I sum these and then bootstrap to get zeros, ...
0
votes
1
answer
36
views
Generating wealth distribution from return parameters (mean, SD)
Super basic question here!
Suppose I start with $100 and invest in an asset with known mean (arithmetic) return and standard deviation of returns.
I'm interested in plotting the distribution of my ...
- 101
0
votes
1
answer
49
views
Data on Trading Activity in Fixed Income Markets [duplicate]
Do any readers know of a good data source for trading volumes for fixed income assets (corporates [by rating, if possible], Treasuries, MBS and ABS) that provides historical data (back to 2008)? FINRA ...
0
votes
0
answers
90
views
How to convert the parameters of multi-factors cheyette model (quasi-Gaussian model) from tenors to factors?
The book "Interest Rate Modeling" by Andersen and Piterbarg is an extermely fascinating book on interest rate derivatives.
Recently, I have encoutered some issues while reading this book.
...
0
votes
0
answers
39
views
Closed cycle of pairs in pairs trading
Suppose I am trading cointegrated pairs $A_1A_2, A_2A_3, \ldots A_{k-1}A_k, A_kA_1$ and I got a signal to
long $A_1$, short $A_2$;
long $A_2$, short $A_3$;
$\cdots$
long $A_k$, short $A_1$.
How ...
- 3
0
votes
1
answer
54
views
Why historical data of futures contract price include data after settlement date of the contracts?
I am studying historical data of futures contract prices. I found there are price data after the settlement date of the contract. For example, for Hang Seng Futures with expiry date of Jun, there are ...
1
vote
2
answers
205
views
0DTE volatility and greeks
When european stock options have very little time until expiration (less than 2-3 hours), they can exhibit extreme sensitivity to changes in the underlying asset's price. This behavior leads to ...
- 141
0
votes
1
answer
76
views
If we use BSM to generate a vol surface, and the vol surface isn't flat, doesn't that contradict BSM assumptions itself? [duplicate]
If we use BSM to generate a vol surface, and the vol surface isn't flat, doesn't that contradict BSM assumptions itself?
Or does the contradiction not matter because we'll still get the same rough ...
- 1
0
votes
0
answers
40
views
Lognormal-mixture dynamics and calibration to market volatility smiles
Can someone assist me in replicating the code and results from page 11, Figure 3 of the paper 'Lognormal-mixture dynamics and calibration to market volatility smiles' by Damiano Brigo, Fabio Mercurio, ...
- 101
1
vote
1
answer
180
views
Quantlib - mismatch with BBG Swap
I'm trying to price a CZK swap via Quantlib with BBG data, so far nothing complicated but I can't seem to match the floating leg cashflows, and NPV, when I price my swaps, even if I find the right Par ...
- 21
0
votes
0
answers
23
views
Implementations of stochastic collocation for Arbitrage Free SABR
I am currently reading this paper (link) on fitting arbitrage free parameters for SABR using stochastic collocation. Are there any publicly available github repos that implement solutions that are ...
0
votes
1
answer
21
views
Change of expansion point for singular perturbation solution in Equivalent Black Volatilities
In the paper Equivalent Black Volatilities, an peturbative solution is derived for the equivalent Black volatility of a vanilla call option under the dynamics $dF_t = a(t) A(F_t) dW_t$ by Taylor ...
- 101
1
vote
1
answer
90
views
Improve Trade Execution For Mid-Frequency Futures Systems
I know this is kind of a very open ended question but I am struggling with the following problem:
I have a futures trading system (operating on very liquid markets) that generates a prediction every ...
- 13
0
votes
1
answer
108
views
Pairs trading stocks without shorting
For my high school national trading competition (organised by the national stock exchange, officially starting in a week) I gathered a team of 3 friends and developed a simple pairs trading strategy. ...
- 3
0
votes
1
answer
66
views
Statistical Arbitrage, Avellaneda & Lee - Estimation of the Residual Process
I am trying to calculate the trade signal outlined in Avellaneda & Lee paper "Statistical Arbitrage in the US Equities Market".
They describe their approach in appendix. Here is my ...
- 1
1
vote
1
answer
120
views
If there was a way to back out implied volatility (IV) from a stock, would it be the same as the IV backed out from an option on that same stock?
I know that it is not possible to back out an IV for a stock, because the concept of IV is based on a model with underlying assumptions applied to pricing an option.
I was thinking of why IV is ...
- 559
0
votes
0
answers
48
views
Dimension reduction of par risk strips
I saw some threads about reducing dimensionality of IR risk strips, e.g. PCA and risk bucketing.
However, I did not find a satisfying answer to that yet. Therefore, I decided to formulate a similar ...
- 823
0
votes
0
answers
94
views
Convert US Treasury par yields to spot rates
I'm devising a methodology to transform par yield to spot rates, I'd like to stick with pure python as much as possible so not really after Quantlib (or other libraries) examples.
In particular I want ...
- 1
-1
votes
1
answer
113
views
Treasury Basis Trade - Real life example?
There have been some talks regarding the potential threat arising from Hedgefunds w.r.t. to their leveraged Treasury Basis Trade positions.
Besides some basics, I never fully grasped the mechanics of ...
- 209
2
votes
0
answers
90
views
Antoine Savine's store
In his book "Modern Computational Finance, AAD and Parallel Simulation", Antoine Savine writes page 263 in the footnote : "We could have more properly implemented the store with GOF’s ...
- 93
0
votes
1
answer
115
views
Calibrating the Heston with the Levenberg-Marquardt algorithm
I am trying to implement the Levenberg-Marquardt algorithm similarly to Cui et al. Full and fast calibration of the Heston stochastic volatility model, 2017 here (although using a different method to ...
0
votes
0
answers
32
views
Find variance of Asset with lesser return to make a pure portfolio of it the min-variance portfolio [duplicate]
I need to solve the question mentioned above. For an asset with a worse payoff than another, I need to determine a variance for which the minimum-variance portfolio only consists of this asset.
There ...
- 1
0
votes
1
answer
66
views
Are there any structural reasons for choosing constant forward rate interpolation over linear interpolation beyond just simplicity?
I've been looking into rate curve interpolation methods and focussing on two basic ones - linear interpolation, and constant forward rate interpolation. In the first one, given a rate curve consisting ...
- 155
0
votes
3
answers
324
views
Sticky delta vs sticky strike
I have been trying to get my head around these concepts but what I have found online has caused more confusion: specifically why a sticky delta model might lead to a higher delta or no. of contracts ...
- 11
0
votes
1
answer
29
views
How to formalize and validate models of fundamental factors involved price changes?
Suppose you have some stock X, and its price can be considered a time series. You believe that real-world number Y, like industry or government statistics, which is also time series, influences stock ...
- 101
1
vote
0
answers
115
views
Straddle Approximation - Directly from Integral
The ATMF straddle approximation formula, given by
$V_\text{Str}(S, T) \approx \sqrt{\frac{2}{\pi}} S_0 \sigma \sqrt{T}$
where $S_0$ is the current underlying spot price, $T$ is the time remaining ...
- 11
0
votes
0
answers
55
views
When calculating swaption greeks, would annuity need to be considered? [duplicate]
we all know that swaption price = annuity * black price.
The question is that when calculating risks, should we treat annuity as a constant. i.e. is it correct that swaption delta = annuity * black ...
- 736
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votes
0
answers
52
views
General conventions in Futures prices for commodity
When I look into different Futures quotes of commodities in CME, all of them are based on Expiry month e.g. Dec-2024 etc.
However on the other hand, for fixed income e.g. Swaps, Swaption etc rates are ...
- 41
0
votes
0
answers
40
views
Quantlib Bond yield jump on front end of the curve
I'm trying to build up a US treasury curves using Bills and bonds with the FixedRateBond class, however when I compared the ParYield from .bondYield() and zero_rate from yield curve instance.
The ...
- 1
0
votes
0
answers
114
views
Simulating Hull-White Model in Python
I first simulated the short rate in the Vasicek model using the following code, which is equivalent to simulating the following normal distribution $r_{t} \sim N\left(r_{0}e^{-at} + b\left(1-e^{-at}\...
2
votes
0
answers
101
views
Why does total spread increase as the number of market maker increases?
In the paper Bastien Baldacci, Dylan Possamaï, Mathieu Rosenbaum, Optimal make take fees in a multi market maker environment(https://arxiv.org/pdf/1907.11053.pdf), the total spread is increased to ...
- 21
0
votes
0
answers
36
views
Computation of tangency portfolio [duplicate]
Good morning, I would like to solve the maximization problem that you can find at pag 23 of this source (http://faculty.washington.edu/ezivot/econ424/portfolioTheoryMatrix.pdf) in order to find the ...
- 23
2
votes
0
answers
24
views
Are there known benchmark examples where Cover universal portfolio performs better than naive uniform CRP and Split-and-Forget?
I am investigating the performance of Cover universal portfolios cf. https://en.wikipedia.org/wiki/Universal_portfolio_algorithm (and references therein).
I would like to know if there are any ...
- 21
-1
votes
1
answer
70
views
What is the probability of an asset trending or ranging
Some assets are know(or at-least assumed)to trend more than others. Is the probability of an asset trending equal to the probability of that same asset ranging(i.e 50-50)?
Is there a mathematical ...
- 3
0
votes
0
answers
34
views
How much can news events affect the volatility of a currency relative to another?
GBPUSD is usually more volatile than USDCAD. However during U.S related news releases like the NFP, is it possible for the USDCAD to experience significantly more volatility than the GBPUSD?
- 3
2
votes
1
answer
95
views
Uncertainty on volatility prediction using GARCH(1,1)
I have daily returns data and I predict the variance for the next day using GARCH(1,1) as follows
...
- 21
0
votes
0
answers
33
views
Modeling switch and wild card option for a Treasury futures contract
I understand how to think about the switch option and wild card option in Treasury futures. I know how to model them and get a fair value separately. However, I do not think you can simply just add ...
- 81
1
vote
1
answer
139
views
CBOE dispersion index formula
I came across the CBOE white paper Cboe S&P 500 Dispersion Index Methodology. The formula in Subsection Index Construction/Outline of the Dispersion Index Methodology on page 4 that defines the ...
- 2,746
1
vote
0
answers
49
views
CME historical data of futures prices
Does CME provide any mechanism to freely download historical futures quotes for different futures traded there e.g. Henry hub NG?
I am looking for EoD data.
- 93
2
votes
2
answers
566
views
Delta of Black formula vs numerical
I coded the Black formula (1976) to price a call where the underlying is a forward. I tested it against other sources and it works fine.
I then calculated the delta which, from my derivation and what ...
- 25
1
vote
1
answer
37
views
CML equation - from where does the square come from?
In his textbook Asset management Andrew Ang uses the following CML formula (chapter 6)
E(rm) - rf = y * σ^2
Where y is risk aversion factor
What is the source of square?
When I look at CML graph there ...
- 13