# All Questions

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23 views

### CDOs before the 2007 crisis

I read that before the financial crisis of 2007 the CDOs were so complex that investors could not analyze them. Were they just complex, or was there no public information about what they contained? ...
26 views

### Tangency portfolio with two additional constraints

I know that the formula for determining the weights of the Tangency portfolio is given as $w_{tan}$ = $\frac{\Sigma \mu}{\iota^{\prime}\Sigma\mu }$, but I was wondering how to derive the weights in ...
31 views

### How does buying a CDX and then taking a short CDS position generates alpha?

Can someone please explain to me how buying a CDX and then taking a short CDS position generates alpha? I am so confused.
36 views

### DCF Valuation Models

Does anyone know of any websites that have sample models or mind sharing their DCF models? Trying to get started modeling and can't seem to find many great resources. I know of Damodaran, but his ...
39 views

### How does the volatility skew/smile relate to hedging/trading vanilla contracts?

I know that obtaining and calibrating the smile is important in the hedging and trading of exotics since we use vanillas to hedge and price exotics. How is the smile important in the hedging and ...
38 views

### EONIA capitalisé jour tr eur: can't find index data! Do you know what kind of index is?

To get EONIA capitalisé jour tr eur index returns (monthly returns from 01/2007 until the most recent) is challenging. First i googled the index name searching for the ISIN or the index provider ...
31 views

### looking for a simple realistic parametric volatility model

Which parametric volatility is realistic to test quickly and qualitatively a model? I do not wish to fit market quotes but would like to have a non-trivial volatility with skew or smile to do some MC ...
29 views

i have a quick question about conversion factor and his implication in calendar bonds roll trading. I go short on a calendar roll (short front+long back) which has the same cheapest to deliver. The ...
29 views

### Stochastic volatility with Bayesian inference in Python

Do you know any package in python, for Bayesian stochastic volatility in python?
72 views

### Sum of relative weights in portfolio equal to 0

In the context of portfolio optimization, for now I encountered only cases where the sum of relative weights $h_n$ in each stock is equal to 1. However, I've seen that there are cases where the sum is ...
38 views

### Difference between Predicting stock returns and Forecasting stock Returns?

The data that is used are either Technical Indicators, Fundamentals Indicators or Macro Indicators which is time series in nature. Given, if we are estimating one-period ahead returns(t+1), is there a ...
20 views

### What NPV value to expect with X% success?

cross-posted from https://math.stackexchange.com/questions/3326309/what-value-to-expect-with-x-success I'm trying to intuit the following statements based on the plot below, but I'm stuck on the ...
34 views

### Solutions for Paul Wilmott Derivatives Book

I am looking for solutions manual for Derivatives, "the theory and practice of financial engineering". I'm not sure if the manual is published ever but I couldn't get it. I would be more than happy ...
59 views

### How does duplicate data affect backtesting?

Before developing a trading strategy, one should clean and preprocess his data set. It is very common that a data set contains huge number of duplicates. Question: How does duplicate data affect ...
59 views

### How does one calculate the duration of a cash flow

The question reads: A firm has liabilities as follows: £2,910 at time t = 0 and £7,501 at time t = 4 (time is measured in years). On the asset side the firm has two payments, each for £5,000, at time ...
64 views

As a learner, I'm curious to know the answer to 2 questions regarding volatility surfaces 1) It's stated that volatility surface should be flat accdording to Black-Scholes model. Why is that? Time (...
3k views

### Does banks' profitability really suffer under low interest rates

It is always said that European banks suffer, amongst other things, from the low interest rate environment governing the Eurozone. And that in a rising interest rate environment, banks' profitability ...
72 views

### What is the annualized realized volatility of simulated Brownian motion paths?

I saw this following question in an exam. Take a Brownian motion simulation with drift 5% and annualized volatility of 20% for a period of 1 year. Then the annualized realized volatility of the ...
31 views

### International Baccalaureate - Balance Sheet Format

I would like to transform Tesla's balance sheet (https://www.nasdaq.com/symbol/tsla/financials?query=balance-sheet) into the IB-balance sheet format (see below). In the current assets section, is it,...
11 views

### How to implement Time varying EWMA cross correlation in STATA?

I have read this question, I know about lambda, demeaned subindexes. But not able to implement in STATA?
51 views

### How to find the right Shift for the SABR Model

I'm looking for the right approche to find the right Shift for the SABR Model.
51 views

### Can we use Black-Scholes to price path dependent options?

I know that we can use the Black-Scholes framework to price vanilla products like a European call or put, where the payoff only depends on the share price at maturity. But can we use it to price path ...
27 views

### Negative drift when calibrating GBM parameters

Setup for question: Consider a basket of $N$ stocks $\{S^1, S^2, \dots, S^N\}$. For fixed strike $K$, each stock in the basket, $S^i$, follows the SDE dS_t^i = \mu^i(t) S_t^i dt + \sigma^i(K, t) ...
88 views

### monte carlo simulation

I'm a graduate student working on a real options research problem suggested to me by my advisor. I'm not looking for a solution, but I'd like to know about the feasibility of numerically solving the ...
85 views

### What does “Gamma profit/loss” mean?

I understand the Greeks as derivatives, but I'm very confused with terms like "Gamma profit/loss""Theta profit/loss". What do these terminologies mean? I've searched online but can't find a proper ...
26 views

### Confidence Intervals for ARMA+GARCH forecasts

I have fitted an ARMA(1,1)+GARCH(1,1) model to my logreturns series. When it comes to my standarized error's distribution however, I have opted for a Skewed Generalized Error Distribution, because of ...
43 views

### FX Spot Delta market standard calculation (Trader View)

I am just writing my thesis about FX instrument and hedging and one question popped up which I can't solve. Maybe it is silly but cant find anything about it how the delta of a fx spot is defined and ...
38 views
+50

30 views

### Calculating average Momentum from multiple daily stock returns

I have a dataset with daily stock returns for a period of 1 year. The first few lines and columns of my data look like this: ...
70 views

### Single-step Monte Carlo in Excel

How do you simulate correctly using raw prices not returns? I have corresponding periods of earnings to Futures but the Excel call function =NORMINV(RAND(),mean,stdev) generates negative Futures ...
16 views

### Arbitrage bounds on volatility of price of binary option?

What are the arbitrage bounds on the volatility of the price of a binary option? If the binary price moves too much (such that it violates the arbitrage bounds) what trades would you actually execute ...
44 views

### How can one effectively approximate the fill portion of a limit order in a FIFO order book given it's recent state?

What methods could one use to find the step wise probability of a partial or full fill of an order in the best ask/bid level of a limit order book given the historic best ask and best bid quantities ...
24 views

### Is the ACT/ACT.AFB convention meant to supersede the ACT/ACT convention for interest rate swaps

https://www.isda.org/a/pIJEE/The-Actual-Actual-Day-Count-Fraction-1999.pdf The determination of day counts are slightly diferrent between ACT/ACT (ISDA) and ACT/ACT(AFB). Is the latter more common ...
49 views

### option model value vs market price

In my job as FX trader we use as option pricer a variant of B&S. We use that model for “accounting” purpose, i.e. for storing the daily P&L of the portfolio, and also for control the trading ...
18 views

### black scholes stochastic volatility modeling proof [closed]

Bear with me, I don't have any experience in this subject matter. I'm trying to work through Stochastic Volatility Modeling by Bergomi (https://www.amazon.com/Stochastic-Volatility-Modeling-Financial-...
100 views

### evaluation of option pricing models based on Greeks empirical hedging effectiveness

I’ve studied many different pricing models (B&S, Vasicek, CIR, Merton jump, Heston, ecc), each of them gives as output a different price and different values for the Greeks. So, for example, if ...
63 views

### Why does VIX need to calculate the Forward term?

From the reference, the Vix Whitepaper of CBOE, I found the formula of VIX. There are two terms. The first one is focusing on the info from Option contracts. And the second one is focusing on the ...
17 views

### one regression equation with several independent variables vs several regression equations with one independent variables

For example, we want to use age and IQ to predict GPA. Of course we can do a multiple linear regression, i.e. regress GPA on age and IQ. My question is: can we do two simple regressions instead? ...
22 views

### Possible interference of Cross-Rate inaccuracy and CIP Deviations

I am currently attempting to calculate historical deviations from covered interest rate parity between 2013 and 2018. I recently read that: "Unlike the interbank spot market, in the interbank ...