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9 views

Let $dp=\mu(t)p(t)dt − k\,p(t)h(t)dt.$ Why $E[dp]=0$?

Assuming for simplicity that the price falls during a crash by a fixed percentage $k \in (0, 1)$, the asset price dynamics is given by $$dp=\mu(t)p(t)dt − k\,p(t)h(t)dt.$$ In a paper I read: The no-...
0
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0answers
6 views

Black-Scholes equation Variational / Weak form

I am having difficulty deriving the weak formulation of the Black-Scholes Equation. I have multiplied it with a test function phi and integrated over Omega. But results on the internet suggest ...
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0answers
5 views

Hull White Cap/Floor calibration

I have a problem and I hope someone could help me. I calibrated the Hull-White model to Caps and Floors from t=0 so the bond prices are equivalent to todays term structure. See: Hull-White zero-...
-1
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1answer
13 views

How can Hedge Funds get lots of profit without making big trades?

If Hedge Funds that get money through trading make big trades, they will create whales. How can the get that much profit withou making whales?
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2answers
42 views

Is a more robust Covariance estimation possible?

I'm working on a mean-variance optimization problem, but instead of financial securities I'm choosing a 'portfolio' of N athletes. It is a 1-period optimization problem over one generic statistic ...
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1answer
19 views

Is there any way to compare portfolios created using sharpe optimization model?

I created different portfolios using sharpe portfolio optimization model and I want to know is there any way to compare those portfolios before actually investing in them?
0
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1answer
36 views

Adjusting volatility while constructing portfolio

I am trying to construct a portfolio based on a macro momentum strategy for backtesting purposes as outlined in https://www.aqr.com/-/media/AQR/Documents/Insights/White-Papers/A-Half-Century-of-Macro-...
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0answers
21 views

bond future jump to default calculation

Say the CTD's recovery is 40%, when calculating bond future's jump to default, should it be 1) or 2) 1) (future no. of contracts * contract size * 0.4 - ctd market value)/conversion factor 2) future ...
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0answers
15 views

What are the changes which will be needed in the systems if the settlement cycle changes from T+3 to T+2?

If the Settlement cycle is changed from T+3 to T+2, what changes will be required in the various systems from Front office to Middle office to Back Office. I can think of Reference data service ...
0
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0answers
17 views

CFH TOOLBOX MATLAB OPTION PRICING [on hold]

Does anybody know CFH (Characteristic Function Option Pricing) toolbox of matlab? How does this toolbox work? I've just intalled it into my matlab and I would like to use it to pricing option with ...
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1answer
51 views

Cox-Ingersoll-Ross Zero Bond Put Option

according to Brigo & Mercurio (2006): But how is the Zero bond Put of the CIR model? I couldn't find any information about that. Thanks in advance. Regards Chris
2
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2answers
76 views

Produce the random variable for an asset from a uniformly distributed random varible

I'm working on a quant interview question from the book called Quant Job Interview Questions And Answers (by Mark Joshi and other authors). I cannot understand the following question(not the answer, ...
0
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0answers
23 views

Fourier transform method: the reason why it's beneficial to put points of interest on the middle of the “time-domain”?

I was trying to solve European option pricing problem using Conv method (introduced by Lord in 2008 https://pdfs.semanticscholar.org/0632/460bd50b2151f74ac40028df4cc60e73a884.pdf). The final step of ...
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0answers
29 views

Why use reinforcement learning for portfolio optimization with historical market data?

One of the main advantages of (deep) reinforcement learning approaches (compared to more widely known supervised deep learning approaches) is the fact that it enables us to automatically take ...
0
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1answer
51 views

Deriving implied volatility programmatically

I'm working on a project to calculate the value of options using Python. I'm using the Black-Scholes model, and I can get accurate results by plugging in a given ...
0
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0answers
11 views

What is the payoff matrix of a set of put option that completes the market?

For example, there are three states of nature but only one security yielding payoffs {1,2,3} in the three states. What would be the set of put options that completes the market? I know that if it his ...
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0answers
18 views

0 Delta on Forward starting Equity basket option

I wanted to confirm the inherent reasoning behind 0 delta on a weighted equity basket option. For instance, if we have a basket option with a forward starting initial fixing date, we can expect the ...
1
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0answers
24 views

Quantlib Yield Curve

Is it possible to create yield curve object in Quantlib given some function of time? For example, given Nelson-Siegel parameters, create yield curve which can compute zero yield for any date >= ...
0
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1answer
38 views

Heston model with jumps in both variance and underlying dynamic

How can I build on Matlab a Heston model using characteristic function adding jumps in both variance and underlying dynamic ? Suppose that the number of jumps is Poisson-distributed but the jump size ...
3
votes
1answer
93 views

Is the vega of a portfolio of a long 0.5 delta and short two 0.25 delta calls positive or negative?

More specifically what I am trying to find out is whether the following relationship is always true or not. Same underlying for the calls, assume the most simplistic assumptions (interest rate = ...
2
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0answers
45 views

Dynamic Programming optimal saving-consumtion finite horizon problem

Let $w_t$ denote a consumer's wealth at time $t$ and $c_t$, the amount she chooses to consume, so her savings exiting this time period are $w_t-c_t$. Given this savings decision, her savings $w_{t+1}$ ...
1
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3answers
193 views

List of all Russell 2000 Stocks

Anyone know where to find a list of all the stocks on the Russell 2000 index? I've Googled away on this one, but thus far, have only found a junk site (suredividend.com) that purports to have it, ...
1
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1answer
40 views

What is NYSE breakpoint as used by Fama French?

I googled the term, the closest I could find was "breakpoint", which does not fit the context.
5
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2answers
380 views

Numeric example to understand the effect of option gamma

Gamma of an option is the second partial derivative of the theoretical value of an option wrt the underlying. It should be the rate of change of Delta wrt to a small change on the underlying. However ...
1
vote
1answer
49 views

Variance of a spread for options on spreads

I was reading the paper: https://people.umass.edu/nkapadia/docs/Negative_Vega.pdf In the equation $(5)$, he is defining the variance of the spread as: $$\sigma_1^2S_1^2 + \sigma_2^2S_2^2 - 2\...
1
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1answer
43 views

Value-weighted Portfolio Confusion

just a very short question regarding value-weighted portfolios. As the results are not as expected I try to cancel out any possible wrong assumptions. I created five portfolios à 100 companies out of ...
0
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0answers
44 views

Solving for unknowns in Black-Scholes equation using Python

I have defined the Black-Scholes equation in Python as follows: ...
0
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0answers
39 views

How to build an optimal long-short portfolio?

Assume I have α and β, How to build an optimal long-short portfolio? Can you please give me an example After building that portfolio, what's the expected return?
-4
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0answers
33 views

Put-Call Parity [duplicate]

"Put-call parity, the tells us all things being equal, the right to buy or the right to sell an asset should be equally priced." This is a quote from my text book, and which is used to explain why "...
1
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0answers
39 views

machine-learning method to predict PCA weights

I have been using certain linear-regression to extract the PCA (top 3) weights relating to a certain data-set. I was wondering, instead of using linear-regression to generate the weights, I can use ...
1
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0answers
16 views

Exercise Policy for an infinite American Option, where the underlying asset is a standard BM

I have a basic optimal stopping question. Let $B_t$ be a standard Brownian Motion starting at 0 and suppose $\delta\in(0,1)$. What is the stopping time $T$ that maximizes $(B_{t\wedge T} \lor 0) \...
1
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0answers
13 views

Call price in case of AOA

I have this exercice, and for the last question, i tried to say that with lower bound, $C > S_0 - Ke^{-rT}$ which is $-8$ something but it doesn't make sense so i don't know what to do. Could we ...
1
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1answer
46 views

Alpha generation and factor models

I have studied factor models in a very introductory manner, going through there Fama-French model and then APT. I understand the concept of decomposing returns into factors, but I don't understand how ...
0
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1answer
55 views

Time to Put or Call a Bond

I was studying putable bond and callable bond on my own, there is an exercise question that was a little confusing to me: I understand what the answer explains, but I am confused that, is a bond "...
1
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1answer
39 views

Calculating and visualising the future value of 100USD invested in fixed income securities and bonds in R

I have uploaded TB3MS to R and would like to visualise the future value if i invest 100USD in it. The interval is from 2014 to 2019, monthly frequency. I would like it to be comparable to a plot i ...
0
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0answers
27 views

How to get implied volatility from Heston Model? [on hold]

I calibrated it with DEoptim, I got the Heston Model price, but now I can't get the implied volatility.I'm using the bisection method and it isn't working because I got it wrong. Could you help me ...
2
votes
1answer
50 views

sign of CVA (Credit Value Adjustment)

I recently read chapter 14 of Gregory's The xVA Challenge. He defines CVA as (formula 14.2) $$ CVA = -LGD \cdot \sum_{i = 1}^m EE(t_i) \cdot PD(t_{i-1}, t_i), $$ where $LGD$ is the Loss Given Default, ...
1
vote
1answer
50 views

Hedging a trade for PCA component neutrality

Suppose I am given a set of financial instruments, e.g. {1Y, 2Y, ..., 30Y} interest rate swaps or {Barclays, Lloyds, .. } FTSE100 companies. It doesn't matter which so let's go with IRS. I have ...
1
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0answers
31 views

Data Sources/Vendors for Closed End Fund NAV data

I am seeking NAV pricing for closed end funds as a data source. Listed CEFs are required to disclose NAV once every quarter at the least, and many disclose daily at the most. I do see a previous ...
1
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0answers
18 views

Show the expected return of the portfolio and how to derive return variance of the long-short portfolio?

Show the expected return of the portfolio and how to derive the return variance of the long-short portfolio? (see picture)
1
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0answers
23 views

Black-Scholes-Merton and alternatives as interpolation tools

This is a not very quantitative question, but is nevertheless related to quantitative methods in Finance. I was reading the following paragraph from Hull's Options, Futures, and other Derivatives: ...
0
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1answer
28 views

Shift from stocks to bonds in the 1987 crash [on hold]

I read that a potential reason for the stock market panic of 1987 could be the rapidly increasing long term US interest rates: the yield of 30Y US Treasury Bonds increased from the low of the year, 7....
2
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1answer
61 views

Libor reform: why SONIA stays, but EONIA is to be replaced by ESTER

what is the reason that why SONIA stays, but EONIA is to be replaced by ESTER
0
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0answers
36 views

Hedging option delta

Let's say I am long 1000 50 delta call options. I need to hedge my deltas now. There can be infinite ways to do this. How should I think about proceeding wit this? My first thought was, if the ...
1
vote
0answers
54 views

Proving an Expectation

Assume the risk-free bond $B_t$ and the stock $S_t$ follow the dynamics of the Black & Scholes model without dividends. Consider the perpetual American put option with payoff $(K-S_\tau)^+$ when ...
1
vote
2answers
63 views

Is my thinking on futures implied repo correct?

I am building analytics for futures and have a theoretical understanding. If implied repo > actual repo then I can short futures and go long the security and finance it in repo. ON my Bloomberg ...
1
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0answers
47 views

Should the NPV be equal to zero in liquid markets?

My question is actually very simple. I would like to motivate it by bringing the following example: suppose we have a (conventional) bond which generates $CF_1;CF_2;...;CF_n$ cash flow (for ...
7
votes
2answers
249 views

Stochastic Integral Graph

As we can represent the integration of $f(x)$ on $[a,b]$ with the graph below, I was wondering how to represent the following integral with $X(t)$ a Brownian motion, $f(t)$ any function and $t_j = ...
1
vote
1answer
57 views

Portfolio/sub-portfolio optimization

I have a finite amount of 26 assets, the total amount of these assets needs to be allocated to 9 portfolios. Each portfolio has its own required return which needs to be met, using a min-variance ...
0
votes
1answer
35 views

Security Analysis By Benjamin Graham Example Doubt

So I was reading (trying to read) Security Analysis by Graham and I came across this example ("Example 1" in the image attached below) Being the noob at finance and quant that I am, I was unable to ...

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