All Questions
21,718
questions
2
votes
0
answers
9
views
When getting the local vol surface from the implied vol surface, do we interpolate the strikes?
Using the dupire method:
$$\sigma(T, K)=\sqrt{\frac{\sigma_{\mathrm{imp}}^2+2 \sigma_{\mathrm{imp}} T\left(\frac{\partial \sigma_{\mathrm{imp}}}{\partial T}+(r-q) K \frac{\partial \sigma_{\mathrm{imp}}...
- 21
0
votes
0
answers
29
views
Moneyness, implied volatility and option greeks [closed]
I know that the more an option is ITM, the more is the implied volatility. I would like to deep dive into the concept, what is the logic that drives this statement? Also comparing an option with a ...
-2
votes
0
answers
45
views
Monte Carlo simulation via Excel - a very basic question [closed]
I am learning about simulation modelling / Monte Carlo using Excel. I've never done this before. I am looking at the Microsoft page https://support.microsoft.com/en-us/office/introduction-to-monte-...
- 117
1
vote
0
answers
14
views
Bond indices : where to find yields and asset swap spreads by rating and average duration?
I am looking for alternatives or relatively similar information about historical data for yields and/or asset swap spreads for bond indices in major currency. I would like to gather the info by rating ...
- 31
0
votes
1
answer
39
views
Multiplicative Metric Variance
I come from a math/statistics background and as learned some stuff as a data analyst
I learned a certain technique to calculate period to period variances between some metrics.
I was wondering if ...
- 141
0
votes
0
answers
44
views
Risk-Neutral Non-Linear Option Pricing Black Scholes Model
Looking for some help on this question.
Suppose the Black-Scholes framework holds. The payoff function of a T-year European option written on the stock is $(\ln(S^3) - K)^+$ where $K > 0$ is a ...
- 53
0
votes
0
answers
13
views
Deviation in RSI indicator in comparison to the figure displayed by exchange
I'm trying to implement RSI in Python 3. However, there's a deviation in the RSI figure returned by my method and the figure displayed by the exchange.
In some cases, the deviation is less than 1. But ...
0
votes
1
answer
68
views
book for (investment banking) market risk overview
what is a good intro book / course / source of knowledge on the topic of Market Risk for investment banking? I'm IT person cooperating with quants market risk team, and found myself either missing ...
- 11
0
votes
0
answers
39
views
Use filtered historical simulation to calculate VaR on a repo trade
I would like to calculate the VaR for a repo trade using filtered historical simulation incorporating GARCH.
So, for example, in the first leg, 3000 of bond goes out on day 1. In the second leg, 3000 ...
0
votes
1
answer
74
views
Probability of success given expected return and volatility
I am reading Taleb "Fooled By Randomness", and the author says that a 15% return with 10% volatility translates to 93% success in a year and 50.02% success in any given second.
Could someone ...
- 151
1
vote
0
answers
86
views
Hedging FX Risk of a fund
I manage a mutual fund where the underlying assets (or the shares i buys) are in USD, and my mutual fund is in CLP (Chilean Pesos). How can i hedge this fx risk without affecting the return of the ...
- 11
2
votes
1
answer
60
views
Liquidity Stress Test of Investment fund - Liquidation tracking error
It is my first message on this board, I have hesitated a few days before bothering you with my struggles, but I've seen a lot of very knowledgeable and patient people here willing to help out.
I ...
- 21
-1
votes
0
answers
39
views
Why does NPV correspond to "cash in our pockets now" for risky investments? [closed]
For a positive NPV project with risk free cash flows and assuming access to a competitive money market, it is trivial to show (by appropriately borrowing or lending at the risk-free rate) that the ...
- 115
0
votes
1
answer
78
views
Is this linear interpolation for clean bond price an approximation?
Consider the attached discussion from Berk and Demarzo's Corporate Finance.
I am confused about the calculation of a bond's "clean price". It seems that the procedure described above seems ...
- 115
0
votes
0
answers
47
views
Market Maker Dynamics and RFQ
In the fixed income space, market makers, such as banks, often utilize platforms like TradeWeb. I'm seeking a clearer understanding of the workflow involved in this process.
From my current ...
- 11
4
votes
2
answers
110
views
How would you approach this positive EV and high variance betting problem?
My friend was asked this question and I’m curious as to how people would play. There are 15 cards face down on a table. You can draw any number, n, of them at random. You only see the cards you have ...
- 41
0
votes
0
answers
28
views
Why is BG porcess a pure jump process?
Recently (~10 years ago), Kuchler&Tappe have set up a new stochastic process called Bilateral Gamma process. This process is defined through its increments:
$$\forall t\geq s, X_t-X_s\sim \Gamma_{...
- 101
0
votes
1
answer
58
views
Stock price modelling under binomial tree model?
In binomial tree model, the stock price is modelled in the form of $S_{k\delta}=S_{(k-1)\delta}\exp(\mu\delta+\sigma\sqrt\delta Z_k)$, where $\delta$ is time invertal between two observations $S_{k\...
1
vote
1
answer
96
views
A book that has exercises which closely resembles the content of Lorenzo's Stochastic Volatility Modeling book?
I'm currently going through Lorenzo's book Stochastic Volatility Modeling. The one issue I have is that it does not contain exercises to test your knowledge and learn. Is there a textbook that is ...
1
vote
1
answer
299
views
US swap spreads
Traditionally US swap spreads were traded as LIBOR or OIS swaps versus USTs.
In the former case the spread at the short end of the curve was very much a function of LIBOR repo spreads. Further, LIBOR ...
- 361
0
votes
1
answer
39
views
Compare Spread On A Fixed Bond Vs A Loan/FRN?
I was discussing with a colleague, but in short, how do you compare a fixed bond vs a loan/frn when it comes to spread? Theoretically, you should get paid more for holding fixed bonds, as you have ...
- 1
1
vote
1
answer
36
views
Where to look for data on bonds? [duplicate]
Greetings I am looking for data on bonds. When I go into Yahoo Finance and I type in F for Ford it does not bring up anything about bonds just like that other website(firna) it goes straight to stock ...
- 11
0
votes
2
answers
89
views
Constructing payoff with options
Suppose that COMPANY A has issued a special bond that does not pay any coupons. At maturity T, the bondholder receives the principal (face value) equal to 1,000 plus an additional ...
0
votes
0
answers
82
views
Why is quadratic variation path dependent? [closed]
In chapter 2 of The Econometrics of High Frequency Data the quadratic variation relative to a grid $\mathscr{G}$ of any process $X$ is defined as
$$
[X,X]_t^\mathscr{G} = \sum_{t+1\le t} (X_{t+1}-X_t)^...
- 37
0
votes
1
answer
169
views
+100
mathematical proof of the hedge ratio formula for bond futures
We know that the hedge ratio ϕ_F that we should use in order to to the duration-hedging through bond futures is:
$$ϕ_F= -(DV01_B / DV01_{CTD} )\cdot CF_{CTD}$$
Where $\textrm{DV01}_B$ is the dollar ...
- 11
0
votes
0
answers
52
views
What is the first up date and what exactly first algorithm of Renaissance?
Charlie Munger mentioned in Acquired Podcast
Renaissance, the first algorithm was so simple. They sifted all this data for the past and what did they decide? Up, up, which were two closing prices, and ...
- 1
0
votes
0
answers
44
views
Is there a relationship formula between Bond YTM, ZSpread ( to OIS ) and OIS rate?
It seems to me that :
$$\begin{aligned}
P_{Dirty} &= \sum_i(\text{cashflow}_i * \exp( - \text{yield} * t_i ) ) \\
&= \sum_i( \text{cashflow}_i * \exp( - ( \text{OIS}...
- 1
0
votes
1
answer
50
views
Calculating key dates for a Forward Starting Interest Rate Swap versus a Spot IRS
How are the Effective Dates and Maturity Dates of a forward starting IRS (eg: EURIBOR3M 5Y5Y) handled when the forward starting term ends on a non-business day? And if that date is adjusted, how does ...
0
votes
1
answer
70
views
Any other ways to hedge a bond portfolio against interest rate risk? [closed]
I'm currently taking a (gentle) intro to derivatives class. One of the exercises asked me to discuss duration as a risk measure and to provide alternative methods of hedging a bond portfolio against ...
- 101
1
vote
2
answers
93
views
QuantLib Python - Discount Factor Interpolation within curve nodes
Generated a discount curve, dCurve.PiecewiseLogLinearDiscount() using input par rate for terms (.5Y, 1Y, 2Y, 3Y, 5Y, 7Y, 10Y, 15Y, 20Y, 30Y) and output discount curve matching the input term structure....
- 11
1
vote
0
answers
67
views
QuantLib: Latin American FixedFloat Swap pricing with multiple payment frequency specification
With reference to the post of latin american swap, I am valuing the FixedFloat CLP swap.The specifications of this swaps has payment frequency upto 18 months as Zero coupon(1T) and after that ...
- 37
0
votes
1
answer
104
views
How to get the fair value for an option with variable strike?
I'm dealing with a plain vanilla written put but my strike is linked to this formula:
$$K=(7 \cdot EBITDA\cdot Net Debt)\cdot [\%P]$$
where
EBITDA = EBITDA of the company as of the last closed and ...
1
vote
0
answers
41
views
Fama-MacBeth regressions to predict stock returns; confusion on which steps to use
When following Lewellen (2015) (open access here), I am confused as to whether I need to estimate any lambdas. As I already have values for lagged firm characteristics such as ROA and accruals etc. ...
- 45
0
votes
0
answers
35
views
Downloading historic yield curve data from bloomberg [closed]
I am a PhD student and I have a couple of problems:
I want to get the US yield curve but I don't know which curve I need.
Once I have identified the curve, I want to download historic data for it.
I ...
- 452
0
votes
0
answers
21
views
FM regressions for size groups when examining a cross section of expected stock returns
When doing FM regressions for size groups similar to Lewellen (2015) (open access here), should I obtain the cross sectional rolling return window betas using only the size group? (E.g only use large ...
- 45
0
votes
2
answers
63
views
Difference in interpretation between credit ratings from different agencies
i got this question at work from a client and my answer was not satisfying so here I am.
if i have a portfolio of corporate bonds and govies, i collect all credit ratings from BBG terminal and by ...
1
vote
1
answer
76
views
Neural network time series prediction tool [closed]
What are some of the state of the art time series prediction tool with neural network?
- 2,746
0
votes
1
answer
123
views
Why do the Greeks not converge to the strike as the volatility tends to zero? [closed]
So, I was playing around with the Greeks in Python with some made up data for a European call option assuming the Black-Scholes model. I plotted the graphs to see what happens to the Greeks when ...
- 33
0
votes
0
answers
49
views
Ito Process: How to calculate expected return?
On page 300 of Hull's Options, Futures and Other Derivatives
It is tempting to suggest that a stock price follows a generalized Wiener process; that is, that it has a constant expected drift rate and ...
- 103
1
vote
0
answers
27
views
Testing one asset pricing model against another a la Cochrane via change in $\hat\alpha' \text{cov}(\hat\alpha,\hat\alpha')^{-1}\hat\alpha$
I am reading section section 14.6 of John Cochrane's lectures notes for the course Business 35150 Advanced Investments. On p. 239-240, he discusses testing one asset pricing model against another. ...
- 2,638
0
votes
0
answers
22
views
Scaling variables (Fraction vs % vs log) when regressing twelve month returns
Dear Stack community,
My question is the following;
If my dependent variable is twelve month returns.
And as independent variables I have fiscal year variables like ROA and log variables like the log ...
- 45
0
votes
0
answers
20
views
Testing one asset pricing model against another a la Cochrane: why this works
I am reading section section 14.6 of John Cochrane's lectures notes for the course Business 35150 Advanced Investments. On p. 239-240, he discusses testing one asset pricing model against another. I ...
- 2,638
0
votes
0
answers
18
views
Price spread or ratio for mean reversion pair trading
I am slightly confused as to whether I should use price spread or ratio for mean reversion in pair trading. I have seen some work on testing stationarity for the price spread and then use the price ...
0
votes
0
answers
14
views
Fuzzy Logic - Smoothing of payoff function: Linear vs. Sigmoid
For some options such as digital and barriers it is common to use "Fuzzy Logic" to improve estimation of value and greeks. But how / when are different functions used for smoothing the ...
- 548
0
votes
1
answer
65
views
Pricing look-back option
I have the monthly price data of a stock starting from December 2020 and I am considering a EU style look-back option issued in December 2020. The payoff at maturity of the look-back option is given ...
1
vote
1
answer
16
views
Does including an additional pricing factor necessarily reduce the pricing errors?
I am reading section section 14.6 of John Cochrane's lectures notes for the course Business 35150 Advanced Investments. On p. 239-240, he discusses testing one asset pricing model against another.
...
- 2,638
0
votes
0
answers
32
views
+50
Testing one asset pricing model against another a la Cochrane: a counterexample
I am reading section section 14.6 of John Cochrane's lectures notes for the course Business 35150 Advanced Investments. On p. 239-240, he discusses testing one asset pricing model against another. I ...
- 2,638
1
vote
1
answer
42
views
The relationship between no-arbitrage and the law of one price
If no-arbitrage exists, then the law of one price holds, but the existence of the law of one price does not always imply that no-arbitrage exists." To prove this, what is an example where the law ...
- 11
1
vote
0
answers
46
views
When is the Quantlib's C++ to python package faster than just coding natively in python?
Every package I have used of the QL's python package thus far have been slower than my own local python functions. From what I understand, it's running C++ underneath, but if you are running loops/...
1
vote
0
answers
88
views
Portfolio construction in the real world [closed]
Good day. I am looking to understand how the portfolio construction process is actually done in the industry. Now, I do not know if there are too many resources on how things are currently being done (...
- 11