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Quantlib : How does interpolation technique in zero curve improve the valuation of interest rate swaps?

I am working on building zero curve using interpolation = ql.Linear(). I know that this method is very popular to build short and long end curve. But am wondering if there is any another way of ...
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49 views

Two- (multi) dimensional geometric Brownian Motion

I am trying to calculate the value of a Basket Option with two stocks and the following information: S1 = 100, S2 = 120, r = 0.06 L = Volatilitymatrix = ((0.3, 0.1), (0.0, 0.2)), weight of Stock 1 = 1/...
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1answer
74 views

Why are equity futures so disconnected to the underlying index? Example

I am looking at ZWPH0 which is a future and the underlying index MSCI World. According to Bloomberg the prices are as follow: 13 March 2020: MSCI World 451 / ZWPH0 5234 16 March 2020: MSCI World 410 /...
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1answer
53 views

Normalizing with Sum of Zero-Coupon Bond Prices

Suppose you are receiving a payment $K$ at time $t_m$. Let $p(0,t_i)$ be the maturity-$t_i$ zero-coupon bond price at $t=0$. If we consider a discrete time $\{0,...,t_m\}$, what would it to ...
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35 views

Discretizing Bates SVJ Model to simulate paths

I am trying to simulate a path for Bates Stochastic-Volatility-Jump model. It has the following dynamics: I've managed to implement the Heston model by following Gatheral's books the Volatility ...
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29 views

Automated analysis

while working as a business analyst in a risk revaluation engine I had to give quick explanations to anomalous results. For example, why did a particular contract value jump in this time frame? I am ...
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1answer
84 views

How would you equally distribute the risk of each stock in a portfolio?

Suppose you have in-sample (IS) and out-of-sample (OOS) daily returns of N stocks (IS and OOS dates are the same for each stock). Suppose you want to calculate return captured each day as x * ret. ...
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40 views

Find yield (bid and ask spread)

On March 2, a Treasury bill expiring on April 20 had a bid discount of 5.86, and an ask discount of 5.80. Calculate the best estimate of the risk-free rate to be used in valuing options with the Black ...
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33 views

Question about equation (7) - Asset Allocation vs. Factor Allocation—Can We Build a Unified Method?

Question regarding the article Asset Allocation vs. Factor Allocation—Can We Build a Unified Method? by Jennifer Bender, Jerry Le Sun and Ric Thomas, The Journal of Portfolio Management Multi-Asset ...
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15 views

Trying to grab 2 years blocks of symbol data and would like to exclude symbols that havent traded at least 2 years

Normally I pull all the data I can, this is a very expensive operation. Usually I'm working with 504 trading days plus a month or maybe a quarter of lead time. So I'd interpolate and then count the ...
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37 views

Evaluating Markov switching garch models with R

Hello I have been working on a Markov switching GARCH model my intention is to use it to trade options volatility . I have created a Markov switching garch model using the MSGARCH package in R and in ...
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38 views

FRTB Spearman correlation coefficient definition

I am just writing my thesis and would like to understand the spearman correlation coefficient definition within the FRTB. Somehow it is not clear from the definition. The reason what I don't ...
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2answers
84 views

ATM volatility for FX options

I am quite familiar with equity implied volatility and smiles. However, I find it quite confusing and unclear when it comes to FX. I read many materials but could not get a grasp of the notion of ATM ...
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36 views

Optimal Cash Deployment in a Bear Market

Assume: You can't time the market bottom You have a finite amount of cash to buy equities There are P dip/bear periods you're gonna purchase the equity 2 Problems: You deploy too much cash early, ...
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0answers
53 views

Black-Scholes Theory vs Actual Market Price

I have a question of which I am uncertain on how to answer, that is: Assume the Black and Scholes differential equation for option pricing with constant risk free rate, $ r $ and constant volatility $...
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33 views

US Treasury: given YTM, calculate price

According to https://www.marketwatch.com/investing/bond/tmubmusd10y At the end of 3/13/2020, the 10 Year Note (maturing 2/15/2030, coupon rate 1.5%) has: yield = 0.981% price = 104 9/32 Assuming a ...
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17 views

How to calculate the revenue yield?

Origination fee is charged as 3.0 % of average funded loan size. How to calculate the revenue yield in the table below?
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46 views

How can I download NYSE market capitalization by using Data Stream?

I am downloading the monthly New York Stock Exchange (NYSE), AMEX and NASDAQ's market capitalization between 31/12/1991 and 31/12/2019 on DataStream. Firstly, I tried to use both 'NYSE composite' and ...
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23 views

Order of expectation versus expectation of order (error terms in Taylor expansion)

Given a payoff function $F(X)$ of a random variable $X$, and a Taylor expansion of $F(X)$ around $X=a$, then the expecation of $F(X)$ can be written as $$ E[F(X)] = F(a) + E[ O((X-a))] $$ Under what ...
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37 views

Variance/VaR calculation for a Portfolio

I'm considering a portfolio of multiple stocks (>2), and calculating their Standard Deviation/Variance and VaR for the portfolio. My question is about the below two ways to calculating them Consider ...
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0answers
47 views

Pair Trade - Should stock order matter

I am testing a simple pair trading algorithm and I'm having problems if I swap the stocks around. I don't know which stock should be X and which should be Y. When I swap them I get very different ...
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31 views

Valuing Long-Term (5+ year) Cliquet Options

I'm trying to figure out how to value long term equity cliquet options with expirations 5+ years out. Even for SPX cliquets, vol surfaces are from what I can tell non-existent. Where would someone get ...
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1answer
65 views

Alternative strategies for hedging customer FX positions in spot market

Generally, if an FX broker decides to hedge a customers' position, it automatically hedges the customer's trade to Liquidity Providers when the trade occurs in the spot market. Let's say, the customer ...
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1answer
39 views

OIS Fixed Rate - how to calculate on trade booking?

I am trying to understand how the Fix rate on a OIS trade is calculated at trade initiation. I understand this process for a Fixed V LIBOR trade non collateralized ( discount and projection curve are ...
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0answers
41 views

Literature and Intro to Dispersion Trading

I am familiar with the basic idea of the dispersion trade i.e. index vol vs constituent vol and implied correlation. I am wondering if there are any standard resources (pdfs, books, presentations) ...
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36 views

Derivation of Black-Scholes for a derivative on a stock that pays continuous dividends, and the derivative pays continuous cashflows

I need help with the derivation of Black-Scholes PDE. The condition is that the derivative is written on a stock that pays dividends continuously (dividend yield D). Additionally, the derivative pays ...
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0answers
32 views

Derivation of the 99.9% CI to a 1 in a 1000 year event

Keen to understand how BASEL derived the 1 in a 1000 year event from the CI 99.9%: The confidence level is fixed at 99.9% (0.999) (i.e. a bank is expected to suffer losses that exceeds its capital ...
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0answers
36 views

CDS basis trade using Risk free rate

The CDS spread pricing model uses “Risk free rate” to discount the PV and the Z-spread also uses “Risk free rate” to compute the spread. But the given example uses repo rate that comparing to Libor: ...
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0answers
50 views

Fitting a non-stationary GARCH model

I'm very new to financial time series. I have a dataset containing the daily simple returns of the Dow Jones Industrial Average and I want to model a (univariate) GARCH model for the daily logreturns. ...
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1answer
49 views

What is the R code for estimating copula parameters of BB1 with dim=2? And what's the code for gof test of BB1?

Kindly assist with R code for BB1 copula. Text books and research articles provide codes for clayton, gumbel, frank, normal and t copulas. However, I can't find code for BB1. For example, this is ...
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30 views

What is the difference between quotes and candles?

Actually I have a software development task to develop a little web app that could analyze some liquid stocks quotes considering OHLC values. So I'm researching some OpenAPI where I have found a ...
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0answers
28 views

How to model the different returns of agents with different information information

For a seminar, I would like to graphically represent the returns made by agents of different information standpoints. In other words, say I have a market tuple $(\Omega, \mathbb{F}, P,S)$ where $S$ is ...
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23 views

Data for Mergers-and-Acquisitions- (M&A)-Announcements

I'm looking for data of company takeover-announcements. Especially I search for US data, but I would also like to get data on other states, e.g. GB or Germany. It would be best if there were free ...
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0answers
34 views

Stock Valuation

Getting into account the different stock valuation methods, is there any good citation on modeling the growth parameter? As far as my humble research is concerned I have found only stochastic growth ...
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0answers
33 views

Slope of Term Structure of Interest Rates

I am trying to understand the terms "flat", "upward-sloping", and "downward-sloping" term structure of interest rates. My understanding is as follows: Consider zero-coupon bondts of differing ...
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0answers
24 views

Formula for bond after-tax total return?

I'm interested in calculating the after tax total return on a fixed coupon bond. In Fabozzi's "Fixed Income Mathematics", 4th ed, p. 149, a formula for "after-tax coupon income interest on interest" ...
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0answers
49 views

What does proprietary trading for derivatives mean?

I understand traditional asset management is buying/selling stocks with clients' money to generate alpha, and proprietary trading is using the company's own money instead. For derivatives, do ...
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0answers
56 views

How does modeling provide an edge to banks in the derivatives space?

I was thinking about the actual need for creating quantitative financial models, especially for derivative products. Consider simple calls and puts for different strikes and expiries on stocks and ...
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0answers
58 views

QuantLib (Python) Heston model delta

is it possible to obtain the delta for Heston model with QuantLib-python? I am using AnalyticHestonEngine and simple European option/payoff. I am aware of the possibility of calculating numerical ...
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0answers
32 views

R-Help..Question regarding working day Frequency in Time series

I have a data where there are observations based on working days in a year. The working days are not same in each year. These are 248 (say in 2018) observations in first year and then may be 246 ...
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0answers
44 views

How to Calculate Discrete Currency Returns for Short Positions

I need to calculate currency returns for 1) short selling the currency and 2) going long in the currency. When going long, the currency is sold at Forward price $F_t$ and bought at spot price $S_{t+1}$...
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0answers
41 views

How do you annualize an OIS rate?

I understand how this works for an annual reset, 1y OIS. In the case of India (ACT/365), for example, let's assume this OIS fix is 5.00% and remain so everyday. Then the realized OIS rate after 1 year ...
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0answers
97 views

Calculating the risk free interest rate, or the continuously compounded yield on a T-bill, at any given time

I'm working on a program using the Black-Scholes model to price options over time. I need to be able to derive the risk free interest rate, and found this while researching: In theory, r is a ...
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0answers
16 views

Synthetically sell to close puts in limited-margin IRA

Suppose: I bought an American put on a stock in a retail brokerage IRA, where I can't sell short or write uncovered options. The put is ITM and has served its purpose for hedging. The put is thinly ...
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0answers
44 views

Holiday handling in Monte Carlo Simulation

For Monte Carlo, usually people will take the days per year as 252 or 250 or 260 to avoid the holiday issue. However, for some stupid reasons, I need to handle the holiday issue with time step as ...
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0answers
22 views

TFX(R Interface to the TrueFX) does not work properly

There's an R package for retrieving FX rates from TrueFX in the Cran but it does not work properly. In the tutorial here, it is said that the following will return the prices as shown below. But ...
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0answers
46 views

Convert drift and diffusion term in terms of time in the Geometric Brownian Motion framework

Assume that we have daily prices covering the period of 10 years. For calibrating the drift and diffusion parameters of the GBM model $$S_{t+1} = S_{t}e^{[(\mu-\sigma^2/2)]\Delta t + \sigma \sqrt{\...
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0answers
29 views

how to calculate yearly volatility from weekly obersvations over 179 weeks?

I am working right now at something and I want to get sure that I am not doing any mistakes - maybe you can help me: I collected weekly returns from a stock over 179 weeks and know I want to ...
0
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1answer
41 views

Inflation Indexed Caplet/Floorlet

Can someone explain what is it with $\psi_{i}$ (year fraction in $[T_{i-1},T_{i}]$). The formula in Mercurio (2006) as is follows: $N\psi_{i}P_{n}(t,T_{i})\mathbb{E}_{n}^{T_{i}}\left[\left(\omega\...

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