All Questions
21,718
questions
12
votes
1
answer
528
views
Fixed income modeling
I am currently working on my research paper and trying to explain a two-dimensional variable: volume and instrument of corporate debt financing.
Independent variables that I believe must be included ...
- 121
3
votes
0
answers
766
views
Hobbyist Quants [closed]
I'm interested in investing some money in the stock market, and I have the math background that will make following the math used in quantitative finance possible (with some work). What are the ...
- 39
15
votes
1
answer
3k
views
How should I estimate the implied volatility skew term when calculating the skew-adjusted delta?
I'm trying to come up with the implied volatility skew adjusted delta for SPY options. I'm working with the following formula:
Skew Adjusted Delta = Black Scholes Delta + Vega * Vol Skew Slope.
I ...
- 513
4
votes
1
answer
5k
views
How to estimate a multivariate GJR or TARCH model in Eviews?
How do I specify the GARCH/TARCH equation in Eviews 6 in the variance regressors frame, if I want to find out whether there are volatilty spillovers from stock markets A and B to stock market C?
P.S. ...
- 41
11
votes
1
answer
5k
views
What is the unit of the Distance to Default measure?
I read in a book that the distance to default of a company is "2.978".
Can anyone please tell me what is the unit implied behind this measure? Are they "years" for instance?
- 717
5
votes
1
answer
333
views
Is it possible to estimate the correlation between an equity and its IV, purely from its IV skew?
If we know the options Implied Volatility (IV) skew for an equity, is it possible to calculate the probability of the equity moving, given a move in the IV?
We can define IV skew as the difference ...
- 1,490
22
votes
1
answer
7k
views
How do I compare implied and historic volatility?
what would you suggest are the starting points for comparing, in an easy, visual way, implied and delivered volatility surfaces? I'd like to see what the differences are between the historic surfaces, ...
- 1,150
7
votes
3
answers
780
views
Debunking risk premium via "hedging" argument? (or why even in the real world $\mu$ should equal $r$)
Since I began thinking about portfolio optimization and option pricing, I've struggled to get an intuition for the risk premium, i.e. that investors are only willing to buy risky instruments when they ...
- 27.3k
10
votes
3
answers
7k
views
What API methods are there to determine a company's market cap?
I'm wondering what API methods there are to determine a company's market cap, i.e. (number of shares issued) * (price per share).
I know IQfeed and perhaps Yahoo will do this - does anyone know of ...
- 1,490
8
votes
2
answers
3k
views
Is duration additive? $C_{newDur}=A_{fundDur}w_{a} + B_{fundDur}w_{b}$?
Suppose quantified duration (like Macaulay duration with changing intervals) $Dur = \frac{\sum t_{i} PV_{i}}{\sum PV_{i}}$ and two funds having durations $D_{a}$ and $D_{b}$. You own them in the ...
- 705
49
votes
3
answers
19k
views
How can we reverse engineer a market-making algorithm (HFT)?
Consider a market participant $A$ who is mechanically following an automated liquidity providing algorithm (HFT) in a number of large cap stocks on a specific exchange.
Assume furthermore that we are ...
- 2,109
13
votes
3
answers
1k
views
How do I eliminate developed currency funding cross rate risk in an EMFX position?
Back in the "old days" (ie 5-10 years ago) when we wanted to be long or short an emerging currency (say the ZAR, BRL, or TRY) we simply did everything against the pre-eminent currency of the day, the ...
- 1,150
11
votes
4
answers
2k
views
How do I estimate the joint probability of stock B moving, if stock A moves?
I have two stocks, A and B, that are correlated in some way.
If I know (hypothetically) that stock A has a 60% chance of rising tomorrow, and I know the joint probability between stocks A and B, how ...
- 1,490
11
votes
1
answer
816
views
If stock A has a 60% chance of rising, and stocks A and B have 80% correlation, what is the chance of stock B rising?
As in the subject, I'm interested in a math puzzle of sorts:
If stock A has a 60% chance of rising, and stocks A and B have an 80% correlation, what is the chance of stock B rising?
Would it be ...
- 1,490
15
votes
3
answers
8k
views
How to simulate slippage
I'm backtesting a trading strategy, using free OHLC data from yahoo or google. I'm simulating friction by lopping a flat percentage (say 0.5%) off my returns for each day that I make a trade. Whats ...
- 1,381
18
votes
4
answers
14k
views
R code for Ornstein-Uhlenbeck process
Can any one help me with some R code to run Ornstein-Uhlenbeck process?
- 1,397
14
votes
1
answer
689
views
How to estimate the covariance of an index with a basket of stocks?
What would be an ideal way to estimate the covariance of an index with a basket of stocks? For example, should I use one-tail ANOVA test or an individual stock & index F-test?
- 1,397
7
votes
2
answers
245
views
Question about equations and risk factors.
Say I have two risk factors $X_1$ and $X_2$. Standard deviation for $X_1$ is $\sigma_1$ and $\sigma_2$ for $X_2$. Furthermore, $X_1$ has a mean of $\mu_1$ and $X_2$ has a mean of $\mu_2$. Correlation ...
- 717
4
votes
1
answer
2k
views
Linear combination of gaussian random variables
I know what random variables are but I don't understand what a linear combination of gaussian random variables is. Can anyone please give me an explanation or clues?
Thanks in advance,
Julien.
- 121
7
votes
2
answers
7k
views
How do I estimate convergence in monte carlo methods?
I am experimenting with Monte Carlo methods. I'd like to measure/estimate convergence with a graph/chart.
How do I do that? Can anyone please direct me to relevant documentation/links or even give me ...
- 121
2
votes
1
answer
49
views
CFTC CPO Exemptions
What are the exceptions set by the CFTC which exempt Commodity Pool Operators (CPO) from registering as such?
- 131
8
votes
2
answers
452
views
How to generalize the Vickrey auction for two-sided trading?
I want to try out the Vickrey auction for a project of mine, but I'm not sure that I understand it completely. The thing is that I have several consumers and several providers trading one resource ...
- 183
7
votes
1
answer
306
views
Modeling liquidity effect on option prices
What are practically useful ways of modelling the effect of liquidity on options?
- 3,242
7
votes
1
answer
632
views
S&P 500 list of stocks since 1960
I am looking for the S&P 500 index list of stocks for each day since January 1, 1960. Does anyone know where I can find these lists?
- 171
4
votes
1
answer
675
views
Basel II modelling vs Solvency II modelling?
How do the two modelling frameworks compare? I spent some time developing PD LGD and EAD models for banking portfolios... But I never did insurance modelling project which I suspect is based on ...
- 2,687
8
votes
1
answer
4k
views
Mean Reversion Time Frame
I am running a mean reversion strategy. I have question with regards to half-life; I have heard of OU process to determine the half-life but it's not giving me that kind of result.
Can anyone ...
- 1,397
7
votes
7
answers
4k
views
Recommendation for a book on CVA/Credit Risk and PD/LGD/EAD modeling?
I need suggestions for some good books on the following topics:
Credit Value Adjustment (CVA) / Credit Risk
Probability of Default / Loss-Given-Default / Exposure-At-Default modeling
Any pointers on ...
- 421
19
votes
2
answers
4k
views
Do you have historical tick data you want to donate?
Do you have historical market/pricing ticket data that you would like to donate to the Open Source Trader project (OST)??
Please: upload your files! Once we gather some data, we'll do our best to ...
- 751
7
votes
4
answers
915
views
How to hedge against lack of volatility
Say you have a trading system that works best when markets are most volatile. What would be the best way to hedge against lack of volatility ? For example, 2008, 2009 was highly volatile and it has ...
- 71
8
votes
1
answer
706
views
Tradable Volatility [duplicate]
VIX (spot) has very nice features, including mean reversion. We all know that we can't trade VIX (spot). The closest we can get is using front-month future contracts. The problem I have with that is ...
- 2,687
17
votes
3
answers
4k
views
Order submission strategies of a rational market maker?
Consider a market maker that has decided to try to make a round-trip trade in stock A in order to capture the bid-ask spread.
Assume furthermore that he has no current inventory in the stock A. To ...
- 2,109
7
votes
4
answers
10k
views
Utility to download historical Implied Volatility data from Interactive Brokers?
Does anyone know of a utility that can download historical Implied Volatility (IV) data from Interactive Brokers' Trader Workstation?
- 1,490
1
vote
2
answers
3k
views
Whats the equation to calculate the area under the curve of a normal distribution, given an upper and lower standard deviation?
Lets say I want to find out the area under the graph of normal distribution curve, between X1=standard deviation of -0.5 and X2 = standard deviation of 0.5. Is there a formula for this?
Case study: ...
- 1,490
4
votes
3
answers
652
views
If I have a model that gives 10% "probability edge" over random chance, how do I calculate the position size?
Lets say that I have an imaginary model that always gives me a 10% edge over straight 50/50 odds, one day in advance, for an index (i.e. 60% chance of winning / 40% chance of losing).
How would I ...
- 1,490
11
votes
1
answer
1k
views
A generic limit order book: What are the most important queries it should be able to answer?
Assume a class LimitOrderBook which represents a limit order book in a trading system.
To be able to represent the limit order book a data handler reads a feed ...
- 2,109
7
votes
5
answers
7k
views
Monthly data for popular indices (constituents).
Trying to be concise:
I am interested in the most popular indices (SP500, FTSE100, DAX30, CAC40, SMI30, etc).
For each index I want to know its constituents in a monthly basis.
For each constituent (...
- 1,069
14
votes
6
answers
10k
views
Earnings and valuation data sources online
Are there any free/cheap sources for historical data on company earnings and valuations? I can get historical price data from Google and Yahoo, and it looks like I can get about five years of ...
- 1,381
10
votes
2
answers
2k
views
Mass Market Data Source
My current project requires large amounts of historical and real-time market data (1m or 5m bars for various products, mostly US futures for as far back as available). This data will be analyzed by ...
- 383
11
votes
3
answers
3k
views
Lib for Arbitrage-Free Smoothing of Implied Volatility Surface?
I'm looking for an implementation of Arbitrage-Free Smoothing of the Implied Volatility Surface - Matthias R. Fengler.
Does anyone know of any existing libraries that have implemented this paper? Any ...
- 1,490
12
votes
3
answers
3k
views
Recommendation for a library to calculate the local volatility surface?
I'd like a library to calculate the options local volatility surface, i.e. the options implied volatility surface for a collection of strikes and their bid/ask prices.
Here are the libraries I've ...
- 1,490
11
votes
1
answer
4k
views
How to calculate the local volatility surface using QuantLib?
I'd like to calculate the local volatility surface for a series of option strikes, similar to the surface described in this paper:
http://www.ederman.com/new/docs/gs-local_volatility_surface.pdf
...
- 1,490
8
votes
1
answer
987
views
Modified Durations of Different Noncallable Bonds and function of Maturity
I'm hoping someone could help me understand this subject better.
Basically I am reading a book and it shows a table
...
- 183
7
votes
1
answer
257
views
Reliable Economic Data on China
Trying to develop a new strategy, but I need to find reliable economic data on China. It's well known that the official figures there don't tell you everything (to put it nicely), so I was wondering ...
- 173
14
votes
2
answers
2k
views
Algorithm for the choice of stocks for a equity scalper/market maker to engage in?
Assume a scalper/market maker who is operating on an exchange with $N$ stocks with different characteristics such as current market value, average bid-ask spread, average daily volume and historical ...
- 2,109
7
votes
1
answer
821
views
How do I get the average transition matrix for three consecutive years?
I have a one year transition matrix for three consecutive years. Multiplying these three matrices together yields the three year transition matrix. I want to obtain the average transition matrix for ...
- 71
25
votes
7
answers
17k
views
Why is volatility mean-reverting?
We all know it does mean revert. The question is why. What's making volatility mean-revert? Is it some sort of cyclical behaviour of option traders? The way it's calculated? Why?
- 2,687
20
votes
7
answers
7k
views
Looking for a recommendation for a real life volatily trading book.
Recently I started working in an algotrading company as a programmer.
After I studied that subject a little in the university and read a book or two in that field I gained a little knowledge in that ...
- 613
6
votes
1
answer
234
views
How to scale option pricing components in regard to time
I am looking at closed-form options approximations, in particular the Bjerksund-Stensland model.
I have run into a very basic question. How should I scale the input variables in regard to time? My ...
- 739
7
votes
1
answer
276
views
How are dual class shares different from non dual class shares from a market makers' perspective?
Assume a stock Foo with a single share class.
Furthermore, assume a dual class stock Bar with classes I and II with different voting rights.
The shares in the different classes have equal cash flow ...
- 2,109
24
votes
6
answers
3k
views
Setting the r in put-call parity?
Put-call parity is given by $C + Ke^{-r(T-t)} = P + S$.
The variables $C$, $P$ and $S$ are directly observable in the market place. $T-t$ follows by the contract specification.
The variable $r$ is ...
- 2,109