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Which value to use as shape parameter for Black-Scholes lognormal distribution?

When working with Scipy, lognomal distribution is defined by 3 parameters: the median (loc), the scale (standard deviation or, in our case, the implied volatility) and the shape parameter. But, which ...
181 views

if I had a 1M spread option. Would you say that was 1m notional (for IM purposes) or 1m pay + 1m rec i.e. 2m notional?

Assume I have a 1Mspread option. Would you say that was 1M notional (for IM purposes) or ...
251 views

Trying to calculate WACC (Weighted Average Cost of Capital) for this (small) data set

I've attached the data set I'm working with to this post. I'm trying to calculate the WACC using this data. I found a formula here: http://www.investopedia.com/ask/answers/063014/what-formula-...
2k views

Normal Black-Scholes model for swaptions isn't working properly

I just wrote two functions in Matlab which calculates the swaption prices based on the Lognormal model and on the Normal model, although I have the idea that the Normal model is wrong because the ...
61 views

Convexity in Markovian contingent claim

Background information: I believe we can use Jensen's Inequality here Show that if the payoff function $V(S_T)$ is a convex function on $S_T$, then the Markovian European contingent claim with ...
74 views

Compute the weights in a portfolio consisting of two kinds of stocks if the expected return on the portfolio is to be $E(K_v)=10\%$, given the following information on the returns on stock 1 and 2: $$... 1answer 39 views Compound and continuous interest in the context of debt I'm trying to figure out the concepts "compound and continuous interest". This article explains the material very well in the context of a savings account. However, I find it difficult to transfer my ... 1answer 84 views positive financial leverage in real estate I had the understanding that leverage always helped improve cash on cash returns so long as the interest paid was less than the unlevered rate of return/cap rate. doing a quick back of the envelope ... 1answer 78 views European Markovian option Background information: Consider a European contingent claim with payoff V(S_T), where V: \mathbb{R}_+\rightarrow \mathbb{R} is a function which assigns a value to the payoff based on the price of ... 1answer 203 views Arrow-Debreu Model and Risk-Neutral Probabilities Consider one period Arrow-Debreu model with N = 2 and M = 4 shown in Figure 3.5 and take R = 0. a.) Show that any risk neutral probability \hat{\pi} = (\hat{\pi}_1, \hat{\pi}_2, \hat{\pi}_3, \... 2answers 3k views Zero rate curve USD Libor Good day, I gave following inputs of Libor rates : ON 0.3731 1W 0.3939 1M 0.4265 2M 0.5148 3M 0.6176 6M 0.8655 1Y 1.1336 How can I build zero-rate curve ? 1answer 352 views Performance attribution for personal portfolio - weight attribution i am building a platform for portfolio analytics, part of which is a performance attribution module. Given that most individual portfolio's can never have the same number of stocks as say, a mutual ... 1answer 281 views Extracting IB market data: bid and ask for greeks and IV I wrote a piece of code to get option chains with volatility and greeks from IB market data. After testing yesteday, it seems to work, but I am surprised of seeing bid and ask for impliedVolatility ... 1answer 1k views Metastock end of day data to Python I'm thinking of getting End of Day stock prices from Metastock, but was wondering if it would be possible to have Python to automatically extract the stock prices and store it in a SQL. Would that be ... 1answer 54 views How were the probabilities of recession over the next four quarters calculated in this table? http://www.bloomberg.com/news/articles/2016-02-08/goldman-sachs-says-defy-mr-market-as-recession-risk-still-low The probability of a slump in the U.S. is just 18 percent and 23 percent over the ... 2answers 77 views Where can I find free single-day charts for the S&P 500? I'm trying to find free historical charts of the S&P 500. I don't need the raw data, I just need to access a simple chart showing the movement of the index over the course of the day (for an ... 1answer 207 views Strategies on steepen yield curve Believe that the yield curve is going to steepen very soon. It may be fall in short-term rates, a rise in long-term rates, or some combination of these. What strategy should we pursue in the bond ... 1answer 144 views For a call option, what is the real-world probability of expiring in-the-money? In the Black-Scholes world, the risk-neutral probability of expiring in-the-money is given by N(d2). Can I just replace the risk-free rate by the drift rate to obtain real world probabilities? Thank ... 1answer 1k views Matlab code for equally weighted portfolio I have daily returns of 10 stocks. I need to construct an equally weighted portfolio that goes long in the 3 highest returns and short in the 3 lowest returns. The portfolio needs to be re-balanced ... 1answer 944 views Variance covariance matrix for a portfolio containing bonds also with other asset classes What should we take for a bond or a zero coupon bond in order to make a variance covariance matrix? For example:- Equities - we take the market price Cash - we take the spot rates Bonds - Do we take ... 1answer 119 views wishart stochastic volatility models Stochastic volatility models assume that volatility follow a random process.In the emerging market the volatility tend to be high. why is it that the wishart stochastic volatility model fit well the ... 2answers 2k views How to automatically get all options data for a particular stock into microsoft excel? I'm looking for a way to get the entire options chain (All options expiries) for a particular stock in excel without manually copy pasting anything. It does not have to be real time and I will only be ... 1answer 285 views Aggregating Tick Data I have Level 1 data that has already been aggregated into 0.5s buckets by the exchange. I'd like to further aggregate the data into hourly and daily buckets. I plan to do this by simply taking a ... 1answer 71 views Scaling of probability mass function Given a histogram and the probability mass function values for each observation, when plotting the histogram and the curve (this is bell curve since the data is assumed to be normal) on the same ... 1answer 244 views Pricing a vanilla call option with a fixed dividend I have started a finance course few months ago and am looking for a way to compute the price of a 1-year call option with a fixed dividend paid after 6 months. Using Black and Scholes I know how to ... 1answer 48 views Valuing corporate EUR loan of US entity? Which discount rate to use? US or EU? If a US entity borrows in EUR and I need to perform a DCF valuation on that borrowing, should I use USD based curve (for the appropriate rating) or EUR based curves? In other words do I use the ... 1answer 248 views completeness of the binomial model - proof I am reviewing the steps of proof that the binomial model is complete and don't understand the marked in red transition. Could anybody explain this step? If P^{**} is a risk-neutral measure, so ... 1answer 189 views Leveraged ETF calculation - dropping below zero? I'm running some simulations with a leveraged ETF to investigate that notorious leveraged-ETF decay effect I keep hearing about. When I put in a typical Black-Scholes lognormal model of returns on the ... 1answer 51 views Reshuffling the weighting of assets in an investment portfolio An investor has a £40,000 portfolio, 40% of which is invested in bonds.The investor wishes to add funds to the portfolio by purchasing bonds so that 52% of the entire portfolio is invested in bonds. ... 1answer 46 views Do I calculate weights of assets correctly? I solved attached question but I am not sure whether I did part a and c correctly. Is there a way to calculate weights of A and B by just knowing their standard deviation and correlation's value? 1answer 303 views Show that being Long a caplet & short floorlet (both with strike price K) is equivalent to a FRA where you pay the fixed rate K How do you show that being long a caplet and short a floorlet (both with strike K) is equivalent to a Forward Rate Agreement where you pay the fixed rate K? 1answer 4k views Transforming daily simple returns into weekly I am trying to transform daily simple returns into weekly returns. I am using the following R code: ... 1answer 64 views Please help me with this problem of double exponential distribution please help me with this problem of double exponential distribution 1answer 113 views Is Eurodollar borrowing close substitute for Fed funds borrowing? It is often stated that eurodollar borrowing is clost substitute for Fed funds borrowing. In other words, when US banks cannot fund themselves domestically, they might go to the eurodollar market and ... 1answer 83 views does local volatility make any sense when I only focus on vanilla option? can someone explain me the usage of local volatility? details will be appreciated. Is it of any importance when I now are doing market-making? Please do not laugh at me as I am totally new in this ... 1answer 46 views Calculating Volatility Parameter using Closing Prices [closed] Say you have 3 closing prices... 101 100 102 How would one calculate the standard volatility parameter using these values? I am quite confused, it seems simple enough though. 1answer 101 views Motivation: Stochastic Interest rate model what is a reason that someone might be interested in a stochastic-interest model such as the Chen model? Also can you provide me with a link to an easy to read motivational paper/part of a paper on ... 1answer 233 views Factor model to Portfolio optimization By using the Fama and MacBeth methodology, I have identified the significant factors that explain the returns of my stocks. Now, I want to build a portfolio and backtest it. For that, I am trying ... 1answer 55 views Imposing MLE restrictions by logistic mapping I am doing some Maximum Likelihood Estimation with a density that has time-varying parameters. I am using the fmincon function in Matlab, but I do not know how to ... 1answer 66 views How to calculate 5 years return & STD for ETF? I want to calculate by-myself 5 year return & STD for SPY ETF. What I did: Downloaded to Excel from yahoo finance historical data for the ETF (daily Adj. Close) from ... 1answer 538 views Do FRN's *always* trade on par on reset days, regardless if the issuer's credit quality has changed? I keep reading that floating rate notes trade on par on coupon reset days. Is this always true, regardless of changes in the issuer's credit quality since the FRN was issued? It seems probably ... 2answers 82 views Portfolio return for assets held for different lengths of time How does one calculate the return on a portfolio if the assets in that portfolio were held for varying periods of time? For Example: t_0 Buy AAPL at 100 t_5 Buy MSFT at 20 t_1$$_0\$ Sell MSFT at ...
105 views

For many probability of defaults models in credit risk it is needed to use data observed from a "full" business cycles. Usually a business cycle is defined as a recurring (not necessarily periodic) ...
73 views

How to simulate historical performance of a short position of a security?

I would like to calculate with R the inverse return of Bitcoin. My objective is to simulate the historical price and return of a short position opened in Bitcoin. The first method is to cumulate the <...
654 views

Clayton-Gumbel (BB1) and Joe-Clayton (BB7) time-varying copulas

I'm trying to estimate parameters for Mixed Dynamic Copulas (Clayton-Gumbel and Joe-Clayton) Is there any code in MATLAB? Thanks for any help.
83 views

Is there any research for CoCo-Bond in a two factor model?

Basically I am trying to price CoCo-Bond with the AT1P from Brigo. But in the end this isn´t a two factor model. Is there any concret research about this topic? Kind regards, WLS
91 views

Moving Averages Crossover question

I'm reading on Investopedia that one should buy a stock if short term moving average is ABOVE the long term moving average, since this "indicates an upward trend". However, this is not intuitive to ...
2k views

Corporate bond quote convention

I'm not a quant practitioner, but a student so this may be a very simple question. I was of the understanding corporate US bonds were quoted 1/8 increments and US treasuries in 1/32 increments. Such ...