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Libor Market Model

I try to simulate forward rates with the Libor Market Model (LMM). Unfortunately, I just have data for normal vols instead of lognormal vols which are assumed in the LMM. Is there a way I can adjust ...
Marc157's user avatar
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0 answers
8 views

Weak stationarity of continuous ARMA process from Brockwell

Thanks for visiting may question:) I am currently working on this paper (https://www.ism.ac.jp/editsec/aism/pdf/053_1_0113.pdf) about continuous ARMA processes from Brockwell and i am stuck in the ...
Valentin's user avatar
1 vote
0 answers
17 views

Option Price keeps decreasing as the time-steps increase

I have been writing a code in Python, trying to find a European Benchmark of the Gatheral Double-Mean Reverting model (since there is no available benchmark values online), using the Euler scheme. For ...
TilManG4's user avatar
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0 answers
15 views

In a public private partnership, is a "grant" from a public sector organisation treated as equity or revenue (from point of view of DCF analysis)?

I am learning corporate finance. The question is on public private partnerships, where a private firm is given the right to build and operate an infrastructure facility for several years. The assets ...
significance seeker's user avatar
2 votes
0 answers
25 views

High Frequency Market Making When Short Selling Is Prohibited

I am seeking insights on high-frequency market making strategies in markets where short selling is prohibited. While browsing through research papers and quant.stackexchange.com, there's frequent ...
Less-Owl-4025's user avatar
0 votes
1 answer
31 views

Using QuantLib to build Flat Forward Curve using Changes assumed from central bank meetings to price FRAs

What I am trying to do is price EURIBOR6M FRAs using a curve built in quantlib with changes in rate due to central bank meetings. For concreteness, my goal is to price EURIBOR6M FRAs, say 1x7 FRA, ...
Naim Hussain's user avatar
0 votes
1 answer
40 views

Should I continue CFA? [closed]

I have Bachelor degree in Economics in Vietnam and a Master degree in Economics in Europe. After my education, I worked in Thailand for 2 years in the non-profit sector where I mainly analyzed labor ...
user68863's user avatar
1 vote
0 answers
24 views

Structural Breaks/Changepoints vs Regimes

Structural break is defined as(taken from Introduction to Econometrics by Stock & Watson): When the population regression function changes over the course of the sample" Breaks can arise ...
pandashelp's user avatar
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0 answers
28 views

What exactly is the 'continuous asset price model'?

I am reading An Introduction to Financial Option Valuation by Higham. In Chapter 6, the book covers two asset price models, a discrete one and a continuous one. In Section 6.3 (Continuous asset model) ...
herbhofsterd's user avatar
0 votes
2 answers
51 views

Yield curve and bond price

I am confused about how the yield curve is built and how it relates to the pricing of bonds. First what I don't understand is that when people talk about the yield curve, which yield curve are they ...
yield_curve_and_bonds's user avatar
0 votes
2 answers
47 views

Value the fair price of a 20y Bond

The on the run treasury bonds can only have the following maturities: $2,3, 5, 7, 10, 30$. With a $4$ year bond it's "easy" to evaluate it since we can compare it to the price of the $3$ and ...
confucius_is_confused's user avatar
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0 answers
22 views

IFRS 9 - Expected credit losses

The following comparison document ( https://www.bdo.ca/getmedia/d09dde1a-5004-4f44-b0fb-73c69fa6e2a5/ASPE_IFRS-Comparison_FI.pdf ) states ...
Applecow's user avatar
  • 101
0 votes
1 answer
20 views

Constructing a Corporate Bond portfolio?

Is it possible to create a corporate bond portfolio such that its yield is 100bps higher that its benchmark, while still outperforming the benchmark (BBG Corporate bond Index)? I guess my question is ...
the_brass_bottle's user avatar
0 votes
0 answers
40 views

What is the difference between IRS on SOFR and OIS on SOFR?

Consider the floating leg of an IRS based on SOFR. Now consider the floating leg of an overnight indexed swap based on SOFR. I understand that the former will pay the actual SOFR rate on the fixing ...
JakcieJnr's user avatar
0 votes
1 answer
58 views

What program should I use to handle large high frequency data?

I am going to do research about exchange. For this purpose I get daily data for all stocks to reconstruct order book. I have data on 900 trading days. Each day have data about ticker, timestamp, ...
rallen2lk's user avatar
1 vote
1 answer
43 views

Why does AR(1) model with a small coefficient exhibit faster mean-reversion than one with a greater coefficient (when |$\beta$|<1)?

Suppose we have two mean-reverting AR(1) models, given by $$X_{t}=\beta X_{t-1}+\epsilon_t,$$ where $|\beta|<1$. How fast series reverts to its mean is determined by the coefficient $\beta$. As far ...
Sane's user avatar
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1 vote
0 answers
20 views

To estimate the parameters when only the characteristic function is known to us

Recently I was working with a process named Variance Gamma with Stochastic Arrival (VGSA) and trying to fit this process on a given data. To obtain VGSA, as explained in Carr et al. [2001], we take ...
Starlord22's user avatar
1 vote
1 answer
94 views

The partial derivative of a call option with respect to $t$

In Black-Scholes related computations, why do we not treat the stock price $S$ as a function of $t$ when taking partial derivatives with respect to $t$? For example, if $$c(t,T)=SN(d_1)-Ke^{-r(T-t)}N(...
user81883's user avatar
  • 111
0 votes
0 answers
35 views

Books on IRC modelling

I have read Shreve, I need to understand IRC(Incremental Risk Charge) modelling. Are there any good books at the mathematical level of Shreve Part 2, on IRC?
Abhishek Banerjee's user avatar
1 vote
0 answers
34 views

Why do unleveraged VIX ETPs have large beta relative to VX futures, with much faster decay?

I hope the title explains it fairly adequately. To add a little more detail, it's my understanding that VIX ETPs such as VXX and VIXY hold VX Futures as their underlying assets. I believe that this is ...
barneypitt's user avatar
0 votes
1 answer
38 views

Forward Rate Volatility Calculation - Caps for Libor Market Model

I am trying to calculate the forward rate volatilities from cap volatilities using Rebonato`s volatility model. Unfortunately, my approach always results in unrealistic forward rate vols. Furthermore, ...
Marc157's user avatar
  • 33
4 votes
0 answers
56 views

How is option pricing related to the correlation between implied volatlity and the underlying?

The correlation between the index returns (e.g SPX) and its changes in option-impled volatility (e.g. VIX), is strong, stable and negative (the implied volatility feedback effect). To me at least, it ...
Mats Lind's user avatar
  • 1,402
0 votes
1 answer
91 views

Can someone please help me answer this question about Black-Scholes model? (risk-neutral & true probability of the call option) [closed]

I don't even know where to get started with this question...can someone please help me? How do I answer it?
Jolie's user avatar
  • 1
0 votes
0 answers
20 views

Constructing a monthly option from quarterly options and monthly futures

Say we have quarterly options and monthly futures where the strike price is based on the average price of spot during the corresponding period. There are no monthly options. Can I effectively ...
Sigma's user avatar
  • 1
0 votes
0 answers
30 views

CMS FRA explanation

do you know how works a CMS FRA? CMS FRA confirmation is below. What does 2.344% represent ? why do we have Euribor in the confirmation? Example: ...
Ben's user avatar
  • 1
0 votes
0 answers
17 views

Pricing FRA rates from changes in rates due to ECB meetings and vice versa

This is somewhat building on top of my last question: Explicit step by step curve construction using FRAs I'm trying build (in python) and understand something that will allow me to reprice 6M EURIBOR ...
Naim Hussain's user avatar
0 votes
1 answer
67 views

Why is my Risk Neutral Density recovery failing?

I'm working on a project to recover a known Risk Neutral Density from option prices, using the Breeden-Litzenberger formula (assuming a continuum of option_price(strike_price), the second derivative ...
v.y.'s user avatar
  • 31
1 vote
1 answer
423 views

Is it possible to create an API for trading completely from scratch

I am trying to learn trading and I have searched everywhere but I just don't find an answer to this question. So: Is it possible to create a trading bot and API for it completely from scratch, because ...
user71267's user avatar
0 votes
0 answers
68 views

Correlation between a stock and the index without the stock

The weight of stock i in index m is w. The returns are, respectively, r(i) and r(m). I know the volatility s(i) of i, the volatility s(m) of m and the correlation rho(i, m) between i and m. The index ...
makpalan's user avatar
1 vote
1 answer
120 views

In which context do hedge funds use the Gauss Markov Theorem?

Hedge Funds really like asking questions about linear regression during interviews. Especially about the properties of the OLS. But I don't understand in which context this is used. For example the ...
confucius_is_confused's user avatar
1 vote
1 answer
203 views

Why does Excel's XIRR() yield a different result than the FFIEC's Reg. Z APR calculator?

I'm hoping someone can help me understand the difference in how Excel calculates the XIRR and how the APR is calculated (according to App. J, Reg. Z in the United States). I'm trying to calculate the ...
user348514's user avatar
4 votes
1 answer
145 views

What is the current state of the art method to predict the equity risk premium one month ahead?

I am aware of Goyal, Welch and Zafirov's paper A Comprehensive 2022 Look at the Empirical Performance of Equity Premium Prediction that seems to imply there is nothing one can do to predict the return ...
volcompt's user avatar
2 votes
0 answers
50 views

questions after reading the article by knuteson

I recently read this article by Knuteson and some thought/questions arose. So I was wondering if anyone read it or wants to read it and can comment on a few statements-questions below. I could ...
mark leeds's user avatar
  • 1,102
0 votes
0 answers
82 views

Master Thesis about Heston vs. Duan option pricing model

I would like to write my master's thesis on volatility in option pricing. My idea was to compare the stochastic volatility model of Heston 1993 with the GARCH option pricing model of Duan 1995. For ...
Aaron 's user avatar
1 vote
0 answers
38 views

How to calculate the spot variance from the TSRV (Two-Scale Realized variance)

If the TSRV is given by: $$TSRV = \frac{1}{K} \sum_{i=K}^{n} (S_i - S_{i-K})^2 - \frac{\bar{n}}{n}\sum_{i=1}^n (S_i - S_{i-1})^2 $$ where $\bar{n} = \frac{n - K + 1}{K}$, with $n$ is the number of ...
Xerium's user avatar
  • 53
0 votes
0 answers
40 views

Test Formula for Cross-Currency Basis by Using S, F and Rates. What Rates to Use?

I am trying to recreate the charts on slide 6 on the below. Basically "test" the formula for the cross-currency basis for EURUSD. I am using as target EUXOQQ1 BGN Crncy, which is the ESTRON ...
RickRiederFan's user avatar
2 votes
1 answer
93 views

In how many ways can time endogeneity be defined?

In the literature many papers such as Wenhao Cui take into consideration the problem of time endogeneity. Is it correct to define time endogeneity uniquely as having nonzero correlation between ...
XY0's user avatar
  • 71
0 votes
0 answers
25 views

Calculation of daily dividends from total return index data

I have a question regarding the inclusion of dividend payments in total return indices, but I have no background in finance, so I'm hoping someone here can help me out - any help is highly appreciated!...
user20880144's user avatar
1 vote
0 answers
27 views

Duality in conic quadratic programming for good deal measure

I am working on a problem relating to what is known as the "Good Deal risk measure" for production valuation in incomplete markets. I have created the following primal optimization problem, ...
Mikkel Honningsvåg Sandhaug's user avatar
1 vote
1 answer
110 views

Switch and wildcard option in WN

I am trying to get a better understanding on the switch option for the WNM4 contract. Usually the wildcard is the only option that’s important for WN but now it’s complicated by the wildcard option. ...
decaybeta's user avatar
1 vote
0 answers
55 views

How to generate high dimensional Sobol sequences for practical use?

My goal is to be able to use Sobol sequences to do a large scale market simulation to reduce the variance and improve the accuracy of the results. If I understand correctly, the use of Sobol sequences ...
Jesper Tidblom's user avatar
1 vote
1 answer
117 views

How is the fixed income market organized

For equities it's very simple, exchanges maintain an order book of the limit orders sent and the mid-price of the order book can be considered as the fair value of the stock. For Fixed Income market I ...
MM_2024_23_2's user avatar
0 votes
0 answers
89 views

Positive Theta for an At The Money option (with real data)

Ive been doing some work on looking at historical options prices on a stock index using real data, and I came across an odd example that I cant really get my head around. I am aware that for extreme ...
Arron's user avatar
  • 1
-1 votes
0 answers
38 views

Finding probability involving dependent random variables [closed]

Suppose train on line A arrives in time uniformly distributed between 0 and 4mins, train on line B arrives in time uniformly distributed between 0 and 6 mins, and furthermore the time interval between ...
Harsh's user avatar
  • 21
0 votes
1 answer
111 views

Forward Rate Volatility Calculation - Caps

I am trying to calculate the forward rate volatilities from cap volatilities using Rebonato`s volatility model. Unfortunately, my approach always results in unrealistic forward rate vols. Furthermore, ...
Marc157's user avatar
  • 33
1 vote
1 answer
81 views

Calculating marginal risk contribution of FX for foreign asset portfolio

I am a European investor investing in US equities. My US equities portfolio returns in EUR can be broken down into (1) equities returns in USD terms, and (2) USDEUR spot currency returns. Using the ...
sjedi's user avatar
  • 23
1 vote
0 answers
41 views

How to compute Bonds volatility from Duration and DTS?

I recently came across article From Ad Hoc Bond-Risk Measures to Variance–Covariance Forecasts from De Jong and Fabozzi, where they show how to infer the variance (and covariance) of Corporate Bonds ...
SRKX's user avatar
  • 11.1k
0 votes
1 answer
41 views

Black-Scholes model portfolio position

Question: I am a physicist currently learning about the Black-Scholes model in a statistical mechanics course. I have been teaching myself financial terminology and was reading the "Derivation of ...
Patrick's user avatar
  • 11
0 votes
1 answer
69 views

Long Bond & Interest Rate Futures Hedge - is it carry negative?

The situation is the following : A bank treasury book, finances its cash bond liquidity portfolio at Euribor 3m flat. The Euribor curve is deeply inverted. The bank invests in bonds with a positive ...
A.S.'s user avatar
  • 1
0 votes
0 answers
58 views

Pricing a floating rate callable bond with rate scenarios, please help!

I need to price a floating rate callable bond in Excel. I am new to this and struggling to find good information on this specific situation. I have several rate scenarios until maturity, i.e. the ...
Yury's user avatar
  • 1

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