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2
votes
0answers
47 views

Approximate Asian option price under Heston Model

I am looking to see if there is a formula or a derivation at least of an approximation of an Asian (Average Price) option under the heston model of stochastic volatility. Please advise
6
votes
2answers
163 views

Differencing vs Detrending financial time series

I'm quite newbie to time series analysis and I have to understand what's the difference between differencing time series (i.e considering $Y_t= X_t-X_{t-1}$) and detrending (using linear regression ...
4
votes
2answers
164 views

Correlation Gold and SPX in BBG

I was always under the impression that gold as a safe haven was more or less inversely correlated to the general market. After using the HRA function in Bloomberg I saw that the correlation is just -...
0
votes
1answer
82 views

Duration of portfolio equals to zero

I am solving the following problem: Consider a 2000 dollars bond with maturity of 5 years and a half-year coupon of 25 dollars at a nominal interest rate of 8% p.a and a consolidation bond (...
0
votes
0answers
34 views

Quantlib for Amortizing securitized loans with option for prepayment

I have not had much experience with QuantLib, but from a brief look through the docs it doesn't necessarily seem suited to my task. Consider a mortgage backed loan. There are various options on ...
1
vote
1answer
83 views

Construction of Butterfly Spread as sum of Call Options

I have rigorously stated my problem here. The task at hand is to express a butterfly spread [no transaction fees] as a sum of long and short call options. I have found the solution on Wikipedia: $$\...
0
votes
2answers
72 views

The similarity between a bond's quoted bid price and its clean price?

Is the Best Quoted Bid Price the same as the Clean Price for bonds? I understand that the Clean Price is the Dirty Price less Accrued Interests, however, I am a bit confused of why the Bid Price = ...
1
vote
1answer
44 views

Differences in bull put spread option strategy

I am supposed to construct a profit and loss diagram for a bullish spread strategy: −1put($X_{1}$) + 1put($X_{2}$) and compare it to the profit and loss diagram for the strategy: −10put ($X_{1}$)+ ...
0
votes
1answer
38 views

Market vs. Credit Loss distributions: differences

If we define the Loss distribution of a portfolio as $$L_{t+h}=-(V_{t+h}-V_{t})$$ where $V_{t}$ is the value of the portfolio at time $t$ and $h$ is the time horizon, which are the (graphical) ...
1
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0answers
26 views

What is the effect of put call open Interest on price action

how option put call open Interest affects price actions as put sellers feel price when price goes down or call sellers feel pain when price goes up and how this affects price action. ie when price ...
0
votes
1answer
78 views

What is the go-to method for numerical pricing of discrete barriers?

There are tons of methods for pricing discrete barrier options in various models? What is the go-to "classical" method that is most popular? Hopefully not Monte Carlo (significant accuracy would ...
0
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0answers
26 views

How to calculate RSI if the available data has missing values in between?

I have to calculate RSI for a dataset which consists of the Open-High-Low-Close Prices of 2-second candlestick of an instrument for a period of 5 days.It contain some missing values in between.how ...
2
votes
1answer
67 views

Credit VaR Formula

in Chapter 23 of Hull's Options, Futures, and Derivatives he has an example (i.e. example 23.4) which shows how the Credit VaR formula is applied. The answer in the formula is 0.128. I can't seem to ...
1
vote
1answer
58 views

Bonds are traded and settled at clean price or Dirty price? [closed]

Are Bonds are traded and settled at clean price or Dirty price ?
5
votes
2answers
228 views

Can strike prices of options be negative?

I am trying to understand the stochastic model of a financial market in one period by [Föllmer, Schied]. They introduce call and put options for the primary assets, which are non-negative. They do not ...
1
vote
1answer
75 views

OHLC prices after filtering

Assume we have minute-bars of OHLC stock prices. Then, applying Kalman filter to those prices separately, we can remove a measurement noise and obtain the estimates of the states of the price ...
0
votes
0answers
50 views

PD calibration using Bayes formula

When calculating ECLs for loans under IFRS 9, one of the requirements is that the PD estimates have to be Point-in-time ($PD_{PIT}$) rather than through-the-cycle ($PD_{TTC}$).The setting is as ...
2
votes
0answers
35 views

Where could I get European non-dividend option data

I am pretty new to option pricing. I got a task asking me to price a stock option, which should be an European non-dividend option, and compare my price to its quote. I used to use TSLA data ...
0
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0answers
32 views

Question on Scipy - Minimize. Adding additional constraints

I am trying to using scipy minimize function for the following optimization: ...
1
vote
2answers
159 views

How does a high frequency trading bot work?

I've read this (https://cryptodaily.co.uk/2019/11/what-you-need-to-know-about-high-frequency-trading-in-the-cryptocurrency-world): Let’s go back to your buy order of 10 BTC and imagine that it ...
4
votes
2answers
89 views

Volatility of Exchange Option

I got a question and its partial solution, and have some doubts about the volatility of its geometric Brownian motion process: Question: How would you price an exchange call option that pays $max(S_{...
3
votes
1answer
54 views

Price Down and In Barrier Option Using Local Vol and Monte Carlo

As an entry level financial engineer, I'm trying to make sense of a practical case using the concepts I learned including local vol, monte carlo, so I really appreciate your advice if my understanding ...
1
vote
1answer
105 views

Quantlib Natural Cubic spline yield curve

Is there an example to use Natural Cubic spline interpolation for yield curves in Quantlib python? I can see from the SWIG file that the interpolation is exposed but not sure how to use it. I can ...
1
vote
0answers
52 views

Bloomberg Treasuries PX_Last and daily returns

I tried to search for this specific question, although I didn’t found a conclusive answer. I have a dataset containing the yields of several T-Bills and T-Notes that were downloaded from a Bloomberg ...
2
votes
1answer
68 views

Calculating Implied ATM Volatility with Vega

Can we calculate Implied ATM volatility with Vega? Normally, Vega is derived from Volatility, but I wonder the availability of the opposite way.
3
votes
1answer
53 views

Time of Nasdaq daily close price

On the Nasdaq website It Is stated that the market closes at 4:00pm. However I have historic intraday minute prices and I can see that that are minutes with prices after 4:00 PM (I am assuming its ...
1
vote
1answer
95 views

Nonlinear Black-Scholes model Vs linear Black-Scholes

I am working on a project related to Nonlinear BS partial differential equation, with terms for transaction costs and/or discrete hedging. I have two questions: Is there any exact solution to the ...
1
vote
0answers
28 views

Inflation TIPS - What does it mean - 10Y breakeven shorts with 0.8 beta?

"10Y breakeven shorts with 0.8 beta" "10Y breakeven shorts with long 80% nominal to eliminate long duration bias" Are the above two the same, what do they mean?
1
vote
0answers
37 views

Repo rate in GBM [closed]

I have seen people use $\mu = r_f - repo$ in GBM. 1, Why do we subtract repo from risk free rate? 2, Is the stock price still a martingale?
5
votes
3answers
283 views

Curve building dates overlapping impact on discount factor

I'm building a short end of the libor curve using deposit & fra due to overlapping in dates I get wrong values of Discount factor, here's the data i'm working with: My today date is : 23/10/2019 ...
4
votes
1answer
133 views

Libor to SOFR transition Yield Curve Construction

With the imminent transition from LIBOR to SOFR next year, what are the data points practitioners are using to the yield curve? Also, since LIBOR implicitly took into account credit risk of the ...
1
vote
0answers
74 views

Discount factor in Hull-White model

Consider a Hull-White model $dr(t)=\left(\theta(t)-a(t) r(t)\right) dt + \sigma dW(t)$ with parameters $a=0.1$ $\sigma=0.3$ $\theta(t)$ was calibrated to match $P(0,t)=\exp(-\mu t)$ with: $\mu=0.2$...
1
vote
2answers
148 views

Micro-pricing of futures

I’ve heard that a lot of HFT use so called micro price for making predictions for futures and other product. Basically it convert the LOB and order message to a single number. I know it is kind of ...
0
votes
3answers
69 views

Modelling NPV with negative cashflows?

When making capital investment decisions that have cost saving implications instead of cash flow generation, is NPV still valid? For example: A state wishes to decide whether to replace a section of ...
0
votes
0answers
46 views

Future price incorporates cost of carry (like storage cost), but what if its cheaper to just not store it?

Many futures models say the future price is based on the current price plus the cost of carry. IE, assuming zero-interest-rates, then something like: ...
3
votes
1answer
47 views

Variance Swaps for IR products

Just a question here. I am aware that variance swaps for equity products are quite common in the market. However, will anyone be familiar with variance swaps on swap rates in the market? Are they ...
0
votes
0answers
42 views

Risk neutral valuation logic/intuition

I was reading on risk neutral valuation and i ran into this statement "according to the law of one price , if you have two assets with identical expected cash flow , their current prices must be the ...
3
votes
1answer
476 views

Why is long term binary put option more expensive than call assuming driftless GBM?

Says X follows a driftless geometric brownian motion(GBM) given a volatility ($\mu = 0$). It gives the expected value of its initial spot. (Source: https://en.wikipedia.org/wiki/...
0
votes
0answers
38 views

How to proof the formula to be martingale under ITO process?

How can implies that is a martingale when using the defaultable bond price?
3
votes
0answers
59 views

GBM probability of hitting non constant barrier

I know there is a formula for probability of hitting a constant barrier for GBM/BM (See page 651 in Martinagle Methods in Financial Modelling). Is there a formula for non-constant barrier? The ...
4
votes
1answer
91 views

How to determine components of Affine Term Structure for an Ohrnstein-Uhlenbeck process?

I wonder how I can determine the components $A(t,T)$ and $B(t,T)$ for the zero-coupon bond price process $p(t,T)=e^{A(t,T)-r(t)B(t,T)}$? The components are defined in the following link: https://en....
0
votes
0answers
63 views

Bond arbitrage in practice

If we have the following term structure for riskless bonds: \begin{array} {|c|c|} \hline \text{Maturity} & \text{\$1 Zero-Bond price}\\ \hline \text{0 years} & \$ 1.00 \\ \hline \text{1 years}...
1
vote
2answers
103 views

How to Understand Lognormal Distribution in the Following Case

I got a question and corresponding solution, but have some difficulties in understand the lognormal distribution part of it, so I really appreciate your advice: Question: assume zero interest rate ...
0
votes
0answers
28 views

Confirm If Risk-Neutral Measure is Unique in My Following Case

I'm reading a book that discusses about derivatives pricing and have some doubts about a particular problem and really appreciate your advice: Question: Assume a non-dividend paying stock follows a ...
3
votes
1answer
140 views

Mark Joshi uses forward price to price an option that pays $S_t^2-K$ if $S_t^2>K $ and zero otherwise? Why can we do that?

The following question is taken from Mark Joshi's Concepts and Practice of Mathematical Finance, second edition, Exercise $6.6$ Suppose a stock follows geometric Brownian motion in a Black-Scholes ...
3
votes
1answer
137 views

In Carr-Madans option pricing method, why do they use FFT?

In the famous fourier option pricing method by Carr-Madan, (http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.348.4044&rep=rep1&type=pdf), the crucial formula is They evaluate this by ...
0
votes
1answer
59 views

Anyone working on rough volatility modelling? Need relevant books to read

Just wondering if there is anyone working in the field of rough volatility? I know the rough volatility modelling is quite new in the field. Can I get some books recommendation to go through?
0
votes
0answers
28 views

Understanding the Trading of Forward vs Spot Rates (non-hedging perspective)

From the perspective of a speculator, was wondering if this is the correct way to think about trading forward vs spot products. Say for example the spot starting 2yr swap rate = 2.5% while the 1yr-...
1
vote
1answer
61 views

Show that $Ae^{rt}$ is a solution of the Black-Scholes equation. Why should this be so?

The following is taken from Mark Joshi's Concepts and Practice of Mathematical Finance, second edition, exercise $5.6$. Question: Show that $Ae^{rt}$ is a solution of the Black-Scholes equation. ...
1
vote
0answers
85 views

How to determine exchange rate dynamics in currency derivatives

I need some guidance regarding exchange rate dynamics in currency derivatives. Following three dynamics are defined below, $\frac{dS(t)}{S(t)}=\alpha dt+\sigma dW(t)$ ; the stock dynamics in the ...

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