All Questions

4,092 questions with no upvoted or accepted answers
Filter by
Sorted by
Tagged with
5
votes
0answers
220 views

Merton's portfolio problem with constraints

Suppose the investor can invest in a Black-Scholes market with one risky asset $S$ with drift $\alpha$ and volatility $\sigma$ and a riskless asset $B$ with a riskless rate of return $r$, and the ...
5
votes
2answers
785 views

Cointegration and Ratio Pair Trading

I'm having some confusion doing Engle-Granger Cointegration test and then trade the ratio. Methodology: Run an OLS fit for A and B price time series without a constant. Therefore, $\hat{Y} = \gamma \...
5
votes
0answers
212 views

Implementing Hanson`s LMSR with Limit Orderbooks

I am trying to integrate Hanson's LMSR (see (see logarithmic market scoring rule)into an order-book with traditional bid/ask-limit orders (in KDB+/Q). The following functions define the basic LMSR ...
5
votes
0answers
200 views

Finite Difference with SVI Vol Model

I am attempting to implement a local vol pricing model in finite difference for equity index options. I have followed Gatheral's Lectures and fitted an SVI Model bringing me to the following local ...
5
votes
0answers
48 views

Martingale property of inhomogenous poisson process

I have found this martingale property for an inhomogenous poisson process with intensity $\lambda(s)$ which I don't know how to prove. The text itself advises: "proceed using Monotone class theorem". ...
5
votes
0answers
686 views

Gyöngy Theorem Proof

Can you please point me to a publicly available text that discusses the proof for the Gyöngy Theorem? Gyöngy, I. (1986), “Mimicking the One-Dimensional Marginal Distributions of Processes Having an ...
5
votes
0answers
278 views

Dupire's calibration

I'm trying to implement a method for calibrating the local volatility model (Dupire's one). I'm working on the paper from Andreasen and Huge : Volatility interpolation (SSRN). Is this considered to be ...
5
votes
0answers
280 views

Bayesian strategy selection

I have N strategies/signals that I would like to allocate to. I want to estimate an estimate of future performance based off of recent realized performance (momentum of strategies per se - e.g. ...
5
votes
0answers
157 views

Pricing and hedging of vanilla options based on non-tradable underlying

Consider a non-tradable stock index $S$ which satisfies: $dS_t=\mu S_tdt+\sigma S_tdW_t$ and a risk-free asset $B$. I want to price an European Call option with the payoff $C_T=max(S_T-K,0)$. The ...
5
votes
0answers
122 views

Complete Financial Market: Integrability condition for Contingent Claims

Consider an arbitrage-free and complete financial market with underlying filtered probability space $(\Omega,\mathcal{F},\{\mathcal{F}_{t}\}_{t\,\in\,[0,T]},\mathbb{Q})$, where $T\in(0,\infty)$ is ...
5
votes
0answers
168 views

Measure how different forecasted volatility is from realized volatility

Hi Quantitative Finance Stack Exchange, I'm looking for an opinion on a simple question. Suppose I use a Garch(1,1) model to make a volatility forecast. At time $t$, I have realized volatility $\...
5
votes
0answers
454 views

What is the proportion of aggressive orders vs passive orders executed by different types of traders?

It's clear that each aggressive order (or market order or limit crossing BBO) is matched against the same volume of resting limit order(s). I'm interested in statistics per different types of ...
5
votes
0answers
97 views

Why use sovereign default risk to determine equity risk premiums?

Damodaran's paper "Equity Risk Premiums..." (2016) discusses the standard of using various measures of sovereign default risk (e.g. Moody's ratings, bond default spreads, CDS spreads) to estimate ...
5
votes
0answers
380 views

Cleaning correlation matrix, Bun Bouchaud Potters (2016) method

Stock returns correlation matrices are notoriously hard to estimate, especially when the number of assets $N$ is large with respect to the size of the readily available historical returns $T$. Many ...
5
votes
0answers
267 views

pricing option with two stocks

Let $\left(S_t^{(1)}\right)_{t\ge0}$ and $\left(S_t^{(2)}\right)_{t\ge0}$ be the price processes of two stocks with dynamics $$ \begin{align} & dS_t^{(1)}=\sigma_{11}S_t^{(1)}dW_t^{(1)} \...
5
votes
0answers
104 views

Is the exponential Shannon entropy sub-additive?

In a recent paper of Salazar et al. (2014), The Diversification Delta: A Different Perspective, forthcoming in the Journal of Portfolio Management , the authors propose to use the exponential Shannon ...
5
votes
0answers
203 views

Pricing interest rate options in emerging markets

I've been thinking how to price the early payment of mortgages in banks from emerging markets, where swaptions/caps/floors aren't available, and how to hedge this kind of options. At first I thought ...
5
votes
0answers
187 views

What are some standard software stacks for financial data collection, storage and visualization?

I'm looking for the fastest way to get up-and-running collecting time-series data (mainly through scraping and through 3rd party APIs), storing it and visualizing it on a dashboard with graphs. I'd ...
5
votes
0answers
219 views

Quantitative approaches to measuring the effectiveness of a Stock Option Pricing Model?

My question contains many parts, but I will try to keep it somewhat focused. I am primarily looking for a framework to evaluate the accuracy of a stock-focused Options Pricing Model. One of the ...
5
votes
0answers
162 views

Interplay of statistical factors (PCA) and market factors (value, momentum, low vol, …)

Is there any research done on the interplay between statistical factors (as a result of principle component analysis PCA) and the market factors (especially value, size, low vol, momentum, quality)? ...
5
votes
1answer
1k views

Stress Testing for VaR

I am trying to perform stress testing for VaR and have taken into consideration two methods:- 1. Sensitivity analysis 2. Historical scenario analysis. According to the Derivatives Policy group we ...
5
votes
0answers
839 views

Greeks of a Basket Option

I want to estimate delta, vega and gamma for a basket option. This option is a European Call option. The underlying is $S=\omega_1 S_1 +\omega_2 S_2$ Where: $S1$ = stock price of asset 1 $S2$ = ...
5
votes
0answers
329 views

Show that in an arbitrage-free and non-redundant market a certain set is compact

Some notation: We consider a financial market with $d+1$ assets, the $0$-th asset is considered the risk-free asset, the others are the risky ones. The vector $\overline \pi \in \mathbb R^{d+1}$ ...
5
votes
0answers
85 views

How to price lookback american option when its payment is distributed during its life

I would like to price a floating strike american lookback with a particular feature: I don't want to charge upfront the client, rather I would like to insert a "running fee", some sort of a dividend. ...
5
votes
0answers
2k views

A model to stochastic hazard rate and CDS spread term structure

I'm interested in the term structure of CDS spread. It's known that the Market CDS rate (fair CDS spread or T-maturity spread) of a CDS contract initiated at $s$, maturity $T$ and recovery function $...
5
votes
0answers
424 views

Calculating volatility of inhomogeneous time series

I am reading an article by Zumbach and Müller whose name is Operators on Inhomogeneous Time Series. This is interesting in general, but my main goal is to learn a good and efficient method to ...
5
votes
0answers
340 views

Algorithmic Trading Model Calculation and Stale Data

I'd like ask everyone a more concurrency programming but definitely quant-finance related question. How do you deal with staleness of data in market hours as quote ticks are streaming and your model ...
5
votes
0answers
1k views

Fitting Student t-distributions to log-returns

It seems that some tail-risk centric groups are bent on using Paretian and t-distributions to account for tail risk when fitting log-returns. It has been observed, however, that with and without ...
5
votes
0answers
170 views

Dividend Index Futures

My question is dealing with the proportionality between Dividend Index Futures prices and Index prices. Indeed, we in the past we used to do a simple regression between these variables and use the ...
5
votes
0answers
268 views

LSM American Option pricing with dividends

Under the Longstaff-Schwartz LSM method for an American call, how should I account for a continuous dividend paying stock? I assume that it'll needs to be accounted for when simulating the underlying ...
5
votes
0answers
133 views

Risk neutral measure in exponential levy model

Is there a method of finding a risk-neutral measure for assets driven by the levy process? I understand there is the esscher transform but I think it tends to transform the processes into ...
5
votes
0answers
131 views

Optimal mortgage rate strategy

When buying a mortgage, you can choose to "lock in" a rate at any point within 60 days of your closing date. Once locked in, you can't revert. This makes it a secretary problem - in the traditional ...
5
votes
0answers
313 views

EUR/PLN and EUR/USD delta-term-vol surface quoting convension

does anyone know for sure what is the FX market convension to quote delta-term pairs for EUR/PLN, for EUR/USD. I know that for EUR/PLN it should be delta p.a forward, for EUR/USD it should be delta ...
5
votes
0answers
311 views

Estimation of ranks of log-returns via copula

I have successfully chosen and estimate a copula for the ranks of the log-returns of my actions. My question is, since I have worked with the ranks instead of directly the log-returns (in order to be ...
5
votes
0answers
422 views

Analyzing the angle between vector of weights and vector of returns in mean-variance optimization

I am using the paper "A Sharper Angle on Optimization" by Golts and Jones (2009) as a basis for my (minor) masters thesis in mathematical finance. The paper focuses on the mean-variance analysis of ...
5
votes
0answers
690 views

VaR backtesting with overlapping time intervals

Of course the issue here is dependence: can it be removed or accounted for (in independence tests too, which of course would be troublesome)? There's a lot of literature on regression in this setting, ...
5
votes
0answers
199 views

Is it more accurate to analyze returns on a calendar day basis than a trading day basis?

I'm rather new to the actual practice of this kind of analysis, but it just seems wrong to me to throw Mondays' returns in with the rest without accounting for the passage of time on the weekend when ...
5
votes
0answers
572 views

Pricing with collateral

I have been confused about many things concerning the princing of securities with collateral. We can prove that today's price of a security( fully collateralized and within the same currency) is the ...
5
votes
0answers
156 views

Are there canonical test cases for testing of pricing engines

Short intro: We are developing pricing engines for the calculation of market risk in a Solvency II solution, including bonds, callable bonds, cds, options, futures and so on. Are there any canonical ...
5
votes
0answers
1k views

Hasbrouck's information share

Given a cointegrated set of price series, I am trying to compute the Hasbrouck's information share, as described in page 12-13 of this article. page 7-8 of this article I have the vector error ...
5
votes
0answers
217 views

Use of Local Times in Option Pricing

I know two applications of local time in option pricing theory. First, it allows a derivation of Dupire's formula on local volatility in a neat way (i.e. without resorting to differential operator ...
5
votes
0answers
191 views

Benefits of Diversification and Rebalancing with negatively skewed leptokurtic return distribution?

I am missing tools to investigate this issue. I am trying to solve this question here. What kind of issues should you acknowledge over the naive diversification/rebalancing with normal distribution? ...
5
votes
1answer
2k views

How to compute the realised intraday volatility?

I'm in the position to calculate a non-parametric volatility estimator for 15 and 30 minutes intervals of the SPY. I got data sampled on second resolution. However, I checked plenty of papers but, as ...
5
votes
1answer
119 views

What type of interpolation should be used in key rate perturbation models?

When perturbing a key rate in order to assess sensitivity of portfolio value, what sort of interpolation is standard? A book I am looking at says linear, but this seems pretty unrealistic to me--and ...
4
votes
0answers
82 views

Expectation of number of hits by a brownian motion

If we denote $\tau_i$ the sequence of stopping times defined by: $\tau_i = \inf(t>\tau_{i-1} : |B(t)-B(\tau_{i-1})| > a)$, $\tau_0=0$. If we denote N the number of stopping times below T. What ...
4
votes
0answers
55 views

Change of the stock price dynamics while pricing using the Fourier transform techniques

Right now I am trying to understand how we can use the Fourier theorem in obtaining the formula for option pricing (from Zhu J., "Modular pricing of options"). While modeling the interest ...
4
votes
0answers
46 views

asymptotic behavior of the pdf constraints due to Roger Lee

In a beautiful paper, http://math.uchicago.edu/~rl/moment.pdf, Roger Lee (2004) shows that implied variance is bounded above by a function linear in the log-strike k. Does anybody know how it ...
4
votes
0answers
106 views

Machine learning - assigning a value to each tradable moment

I've been looking at machine learning trading strategies for some time and realized recently that I've been neglecting a very important part of the equation in terms of training an effective model. In ...
4
votes
0answers
68 views

Why is the Schöbel-Zhu model affine?

In the Schöbel-Zhu model, the stochastic volatility process is $dv_t=\kappa(\theta-v_t)dt+\sigma dW_t$. The characteristic function of the stock process can be found by arguing that the model is ...
4
votes
0answers
69 views

Are heuristic portfolios efficient portfolios?

Markowitz's definition of an efficient portfolio is one that minimizes portfolio risk for a given level of expected return. He therefore calls portfolios along the efficient frontier "frontier ...

15 30 50 per page
1 2
3
4 5
82