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3 votes
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Rateslib - Pricing 1y EUR vs 6M (EUSA01)

I am using the rateslib python library to try to price some European swaps. It seems to be working for most tenors aside from the 1y for some reason. The code I am using is below: ...
barnslinger's user avatar
0 votes
1 answer
64 views

Subpar Results of Historical Portfolio Optimization with Few Assets

Probably a simple question to the P-Quants here, but if you performed portfolio optimization using a historically calibrated covariance matrix (a rolling month of daily returns) with very few assets, ...
KaiSqDist's user avatar
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0 votes
1 answer
91 views

What XCCY pricing inputs do large market makers use for FX Forwards/Swaps?

While there are a few similar questions on here regarding FXF pricing, I was unable to find something that answers this directly. To be more specific, it's clear that as per CIP, the pricing inputs ...
denzilly's user avatar
1 vote
0 answers
21 views

Equivalence time-changed models and stochastic volatility models

I suspect that time changed models can be written as a stochastic volatility model (and vice versa) if the random time is independent of the Brownian motion. Specifically, suppose under the risk-...
Frido's user avatar
  • 2,153
1 vote
2 answers
85 views

Reverse Optimization: finding the returns that satisfy specific weights given one known return

Here is the premise: I have a three asset portfolio, I know the assets covariance, the client's risk aversion and the expected return of one of the assets. I also have a desired set of weights. So, 1) ...
Farrep7's user avatar
  • 21
2 votes
0 answers
52 views

Valuation of forward-starting call with non-zero strike

We know prices for call spread options with strike $K\neq0$ that is an option whose payoff $\varphi(S_T^1,S_T^2)$ is given by: $$\varphi(S_T^1,S_T^2):=(S_T^1-S_T^2-K)^+$$ where $S^1,S^2$ are the ...
Daneel Olivaw's user avatar
3 votes
1 answer
342 views

P&L when hedging with realized volatility

Quoting "The Volatility Smile" of EMANUEL DERMAN MICHAEL B. MILLER, pag.95-96: The hedged portfolio at any time $t$ is given by $\Pi(I,R)=V_{I}-\Delta_{R}X $, where $\sigma_{R}$ is the ...
DivertingPie's user avatar
3 votes
4 answers
364 views

Option: link between Vega and Gamma

I am reading Dynamic Hedging by N. Taleb and I do not understand this statement in Chapter 9: The vega is the integral of the gamma profits over the duration of the option at one volatility minus the ...
Enrico's user avatar
  • 207
0 votes
0 answers
20 views

BOUNDARY CONDITIONS OF A SABR PDE

I am looking to solve a sabr partial differential equation numerically using finite volume method, but I don't seem to find any information about the boundary condition to apply. Below is the form of ...
Mwale Richard's user avatar
0 votes
0 answers
31 views

How to Bootstrap a daily compounding future in QuantLib

Hi I am currently tying to bootstrap the F-TIIE curve for mexican swaps In the short term it uses the F-TIIE Futures. These F-TIIE futures are 1 month futures that start on the first day of the month ...
Fiesteban's user avatar
0 votes
0 answers
18 views

Different CLOB for ONTR securities

I was trying to find the list of all the CLOB for on-the-run UST. I know the following: BrokerTec, TradeWeb which both have different CLOB for ONTR UST. I think Virtu Financial also has one, but I am ...
confucius_is_confused's user avatar
0 votes
0 answers
58 views

Heston model: odd simulations of variance and asset price process path

I've done Monte Carlo simulations of asset and variance processes of the Heston model on Silver via a Full Truncation of Euler discretisation scheme to learn and see for myself how the simulation ...
AQT's user avatar
  • 23
0 votes
1 answer
95 views

Modified duration of T-Bill and zero coupon bond

How to calculate the modified duration of T-bill (discount instrument) and europeans bills (zero coupon instrument). I couldn't find how Bloomberg is calculating those values on YA
Edson Almeida's user avatar
1 vote
0 answers
54 views

Volatility of S&P 500 based portfolios too low

I am trying to calculate the volatility of five portfolios consisting of S&P 500 stocks. The portfolios consist roughly each of 20% of the S&P 500 members between 2015-2022, rebalanced monthly ...
jjb97's user avatar
  • 11
1 vote
0 answers
40 views

Calculating factor attribution to performance from factor exposures?

The process I have followed so far is that I have filtered out the relevant style factors (momentum, growth, value, etc.) for a portfolio using Lasso regression and then done an OLS to calculate the ...
capitalc_12's user avatar
1 vote
2 answers
85 views

Skewness Equivalent to Additivity of Variance

Let $S$ be a diffusion with independent increments and suppose we have options on $S$ with expiries $T_1$ and $T_2$ and ATM implied vols $\sigma_1$ and $\sigma_2$. Let $X_1$ and $X_2$ denote the log ...
aarongroff's user avatar
1 vote
2 answers
80 views

Calibrating CIR to bond prices

Consider the Hull-White model - $$dr_t = (\theta_t - kr_t)dt + \sigma_tdw_t$$ We can/have to calibrate $\theta_t$ to the current bond prices $P(0,t)$ and make it consistent with the HJM framework. For ...
Madhuresh's user avatar
0 votes
0 answers
31 views

What are "Funding Events" for Equity Swaps

have been using PE Swaps deck on Swaps pricing as a reference to understand Equity Swaps better. https://osf.io/72693/download. As I understand it, the Funding Leg Present value can be determined as: ...
ESN's user avatar
  • 1
0 votes
2 answers
131 views

Relation between Survival probability and Credit spread

Let ${CS}_t$ is the term structure of the Credit spread obtained from market. There is a standard relation between this and and term structure of Survival probability as follows, ${SV}_t = \exp[\left(-...
Bogaso's user avatar
  • 838
4 votes
2 answers
517 views

How do banks hedge their FX TARF trades?

How do banks hedge their Target Redemption Forward trades? How effective are these hedges? How profitable are TARFs from the selling side ?
McCruise's user avatar
3 votes
0 answers
64 views

MC pricing of varswap and volswap in Variance-Gamma model

I am trying to price a discretely monitored (daily) varswap and volswap in the variance gamma model (see Madan, Carr and Chang paper for more details about VG model). I expect the values to be close ...
Frido's user avatar
  • 2,153
1 vote
0 answers
41 views

Impact of Skew on Bermudan Swaptions

I'm trying to understand the impact of different skew assumptions on the pricing of Bermudan swaptions, e.g. 10NC1 struck at K%. It is often stated that the price of the Bermudan depends primarily on ...
David's user avatar
  • 76
1 vote
0 answers
27 views

APT assumptions

Suppose an investor identifies an asset with return $R_i$ whose excess return, when regressed on the market portfolio with return $R_M$ and a (zero-cost) long-short portfolio with return $R_{LS}$ ...
Kilkik's user avatar
  • 121
1 vote
1 answer
84 views

Structure of market for equity swaps (breakable vs non-breakable)

In the following answer to a question on breakable total return swaps , the answerer writes that: As a general rule you will find that dealer-to-dealer trades are locked and customer-to-dealer trades ...
Daneel Olivaw's user avatar
0 votes
1 answer
67 views

Proper Use of CPCV for Hyperparameter Tuning and Backtesting in a Trading Strategy

I'm working on a binary classification model for a month-end trading strategy with 6 months of data. Initially, I split the data by using the last month for evaluation and backtesting, but this left ...
June's user avatar
  • 1
1 vote
1 answer
66 views

What's the rate of return on a mortgage?

I'm trying to understand mortgages from first principles, from the perspective of a borrower. Let $S_t$ be the price of the asset bought with the loan at time $t$ (i.e. house). Let $\alpha$ be the ...
user357269's user avatar
0 votes
1 answer
93 views

Expected daily range (SPX) and daily realized range

I'm new in quant math, I'm self-studying it. I have two question in exp. daily range topic. How can we make the possibly most accurate estimation for expected daily ranges? My idea was to take data ...
c.m.'s user avatar
  • 1
0 votes
0 answers
45 views

How do linear wings reconcile with volatility frowns

I was recently looking at a paper that brought up that under certain market conditions the risk neutral density can exhibit thin tails, yielding a volatility frown as opposed to the more usual ...
LSR's user avatar
  • 1
0 votes
1 answer
85 views

variation margin affecting futures price

A quote from Natenberg's Option Pricing and Volatility, on stock index futures and how variation margin can change their price. Ignoring dividends, the fair value of a stock index forward contract is ...
APerson's user avatar
  • 11
0 votes
2 answers
112 views

Why would you take a Loan when trying to Illustrate a Riskless Hedge?

I'm reading an article trying to derive option pricing with a simple approach, but I got stuck. In the second paragraph of this article (Name – Options Pricing: A Simplified Approach), which takes ...
Telefondemonen_se's user avatar
0 votes
0 answers
95 views

Why do we use OTM options to extract implied vol?

It is often common practice to calculate implied volatility using puts for low strikes and calls for high strikes, so to always employ out-of-the-money options. Why is this often preferred to using ...
Mr Frog's user avatar
  • 263
2 votes
0 answers
56 views

What are common parametric forms for VIX smiles?

It is common in SPX markets to fit smiles using Stochastic volatility-inspired and Surface stochastic volatility-inspired parametric forms introduced by Gatheral and Jacquier (2014). In VIX markets ...
Mr Frog's user avatar
  • 263
0 votes
2 answers
121 views

time value of option proportional to sqrt(time)

I'm reading Natenberg's Options Pricing and Volatility, and in Chapter 18, he mentions this about an example: We can further refine our approximation if we note that an at-the-money option is made up ...
APerson's user avatar
  • 11
1 vote
0 answers
24 views

Terminal wealth in multiperiod asset pricing?

I am studying an asset pricing problem and I am having a tough time using finite horizon because I cannot properly define the terminal wealth. I consider agents with exponential utility, who can ...
Ignacio Canabal's user avatar
0 votes
1 answer
111 views

I am looking for help to derive this formula from Brigo & Mercurio

I think my use of numeraire change is incorrect and for sure my understanding is incomplete. $\frac {dQ2}{dQ1}=\frac {Pt(0,T2)P0(0,T1)}{P0(0,T2)Pt(0,T1)} = \frac {1+DeltaF_1(t)}{1+DeltaF_2(t)}$ Then ...
JohnGalt's user avatar
3 votes
1 answer
177 views

Relationship between Open Interest and Implied Volatility

Reference Request for any papers/articles that test the relationship between options open interest and its implied volatility. E.g. I would assume that a high market maker short interest on a strike ...
volquant's user avatar
2 votes
1 answer
131 views

Is price really the cost of hedging?

Assume a vanilla option with 1y expiry. The total vol in 1yr is 20 bps, the vol in first 6 months is 5 bps. The price is created by BS(20 bps). But is this price the correct cost of hedging? Will I ...
Arshdeep's user avatar
  • 2,451
0 votes
0 answers
59 views

What are the assumption in the DTS paper

In the original Duration Times Spread paper from Arik Ben Dor , Lev Dynkin, Jay Hyman , Patrick Houweling , Erik van Leeuwen and Olaf Penninga , the authors define a change in spread as follows: ...
Giuseppe Pes's user avatar
1 vote
0 answers
40 views

Market Data UST

There a lot of new market data providers for retail algo traders. For example the famous one for option is Theta Data Net and for Equities it is Polygon IO. You basically get all the greek/price data ...
confucius_is_confused's user avatar
0 votes
1 answer
105 views

Mean-reversion strategy with overnight gaps

When using stocks as time series data, it is common to encounter large overnight gaps, sometimes because of earnings, other times because of press releases. So, how to correctly account for this ...
quanted's user avatar
0 votes
0 answers
44 views

Issues with a time-dependent market price of risk

I have a time-dependent market price of risk of an asset as: $$ \lambda(t) = \frac{\mu(t)-r(t)}{(T-t)\sigma} $$ where $t$ is the current time and $T$ is a constant maturity time of an asset. Here, $\...
coffee-raid's user avatar
0 votes
0 answers
24 views

roll convention on 1 week instrument on LIBOR curve

I am looking at an AUD LIBOR PROJ curve I want to bootstrap, the business day convention for LIBOR is MOD_FOLLOWING, which seems logical for +1M instrument, however for a 1 week instrument should that ...
Anne's user avatar
  • 1
0 votes
2 answers
196 views

Quantifying Costs/Benefits Of Partial Hedging

Say I sold a long-dated European put option and I want to analyze the costs and benefits of partial hedges in a world with stochastic price movements, rate movements, and volatility. For example, let'...
Mild_Thornberry's user avatar
0 votes
0 answers
57 views

ql.OvernightIndexFutureRateHelper asking for a fixing, but not able to add it

I´m trying to make a Overnight Index FutureRateHelper but when bootstrapping, the following Error arises: RuntimeError: 1st iteration: failed at 1st alive instrument, pillar May 31st, 2024, maturity ...
Fiesteban's user avatar
0 votes
1 answer
68 views

Regression swap vs bond future

I have to perform a regression to get an hedge ratio. The dependent variable is the change on day of a swap fixed rate (f.i. 10y) and the independent variable is the change on day of a bond future ...
Flash7's user avatar
  • 1
0 votes
1 answer
94 views

swap curve calibration with interpolation using newton-like method

suppose 2 swap market quotes for 1Y and 2Y and that swap payments occur semi-annually. calibrating / obtaining the discount factors means finding 4 unknowns / discount factors that reproduce the ...
baluch_stan's user avatar
0 votes
0 answers
41 views

How to Compute Returns from Cumulative PnL and Price Data for Portfolio Optimization in Algorithmic Trading?

I have a set of algorithmic strategies. Each strategy focus on a specific financial product and generates entry and exit Long or Short signals. So for each strategy we can have periods in which we are ...
coni_5's user avatar
  • 1
0 votes
0 answers
21 views

Cs01 computation for TRS with underlying single name bond

What’s the cs01 calculation formula for TRS with underlying bond for a single corporate issuer? Thanks in advance!
Cathify's user avatar
0 votes
0 answers
128 views

Volatility Surface Modelling in Python

For my master thesis, I try to create a Volatility Surface for S&P500 Index options. Every time I run my code, the surface I get is full of spikes. I'm just not sure if these are outliers which ...
Aaron 's user avatar
2 votes
2 answers
117 views

Caplets volatility questions

Is that correct to assume that all Caps/floors are insensitive to correlation between FRA and why? I find it to be a strong assumption and I don't get very much why some people tell me this. If a 3 ...
JohnGalt's user avatar

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