5 votes

Should I use an arithmetic or a geometric calculation for the Sharpe Ratio?

The correct answer is "arithmetic mean, because Bill Sharpe says so". He invented the thing, and he's pretty clear on which one he was looking at. If you use the geometric mean, which is lower the ...
m.a.i.'s user avatar
  • 51
4 votes

i have an option derivative question

Use the call put parity : $$C(t,F_{t,T},T,\sigma,K)-P(t,F_{t,T},T,\sigma,K)=F_{t,T}-K$$ where $F_{t,T}$ is the forward rate(underlying), $K$ is the strike, $t$ the valuation date, $\sigma$ the model ...
Canardini's user avatar
  • 753
4 votes
Accepted

Computing T-Bill Yield across leap year boundary

Due to the leap year 366 days need to be used here to match UST conventions (which is ACT/ACT). In this case it doesn't matter whether your interest period extends to only 1 day after the 29th of ...
oronimbus's user avatar
  • 1,841
4 votes

How is forex price precision (of the actual floating point number) determined?

"How do they choose the forex price number's precision?" By convention. And/or by vendor, e.g. BBG has 4dp for some pairs where Oanda has 5. And of course convention for forwards differs ...
user42108's user avatar
  • 2,209
3 votes

Interpreting an Order Book (example Kraken.com)

This question is unclear to me, what is your goal? It's in BTC Both BTC You can increase your BTC position and decrease your USD position by buying the pair and decrease your BTC position and increase ...
Bob Jansen's user avatar
  • 8,438
3 votes

Annualising Data

It depends on the ratio you are looking at. Most of them are scaled by $\sqrt{12}$, but the Treynor index is a bit different and is scaled by $12$. Sharpe and Information ratios are both ratios of ...
Tim Wilding's user avatar
  • 1,396
2 votes

Estimating realised gains given growth rate and churn

Assume we start at $t=0$ with $P_0$, there are $t=1...N$ subsequent periods, and at each period-end $t$ an (entirely arbitrary) portion $c$ of our portfolio $P_t$ is churned and $(1-c)$ remains ...
Ivan's user avatar
  • 1,356
2 votes
Accepted

Verifying an identity of an equation for Black Scholes formula

I am trying to fill in what Richard left for the second part: \begin{align*} \exp(-r(T-t))E\, N'(d_2) &= \frac{1}{\sqrt{2\pi}}\exp(-r(T-t))E\, \exp\left(-\frac{1}{2}d_2^2\right) \\ &=\frac{1}{\...
Gordon's user avatar
  • 21k
2 votes
Accepted

Probability Density Function sign problem when using Call Price

Note that with $H(\cdot)$ the Heaviside function $$\frac{d}{ds} H(s-K) = \delta(s-K)$$ but $$\frac{d}{dK} H(s-K) = \color{red}{-}\delta(s-K)$$ You can also use the Leibniz integral rule to write ...
Quantuple's user avatar
  • 14.5k
2 votes

When using periods that are not days, what is the usual quote that is used as input into the EMA calculation?

There are several points to answer this question: Most usual quote is the closing price That was my original question. Initially I thought that there is a standard. In his comments, @markleeds ...
jmgonet's user avatar
  • 121
2 votes
Accepted

Alpha calculation inconsistent across methodologies

I think there are a couple points to make here: The frequency of the returns here is important. Because you fitted your model using monthly returns, the model is going to be modelling monthly returns ...
Ringleader's user avatar
2 votes
Accepted

How is forex price precision (of the actual floating point number) determined?

I had to deal with discrete FX quotes a long time ago. My answer may be badly out of date, sorry. For each currency pair, there is a "PIP", which stands for "point in percentage" ...
Dimitri Vulis's user avatar
2 votes

How is forex price precision (of the actual floating point number) determined?

In addition to @user42108's great answer: Maybe you already had a look on the 'usual' sources. Wiki states that the convention is still 4 to 6 digits, and Bank of Canada states the same, i.e. up to ...
Kermittfrog's user avatar
  • 6,435
1 vote

How to calculate monthly returns in R for every company in a dataset of 4000 companies?

You have not said whether the prices are sorted by date (your function requires it), and you have not said what the desired final data structure should be. But here is one way to do it. Start with ...
Enrico Schumann's user avatar
1 vote
Accepted

How to calculate monthly returns in R for every company in a dataset of 4000 companies?

I do not have a R/dplyr at my hand right now, but the following should work: ...
Kermittfrog's user avatar
  • 6,435
1 vote

Calculating front month VIX future returns

but what futures exactly need to be considered (just because there are different prices and therefore different returns). The usual way to do this is: draw a schedule / list of the contracts to be ...
ThatDataGuy's user avatar
1 vote

Overall CAGR calculation

CAGR is the growth rate that when applied to the base year and compounded over the entire time, generates the final value. So to get CAGR you need to plugin base value, final value and duration to the ...
Mehdi Zare's user avatar
1 vote

How are returns on Bond Funds (or ETFs) calculated?

yahoo finance has downloadable price history for this and others. They include the adjusted price which can be used to calculate the total return without any adjustments.
Edward Watson's user avatar
1 vote

Probability Density Function sign problem when using Call Price

Just the chain rule; $\frac{d}{dK} H \left (S-K\right)=\delta \left (S-K\right) \frac{d}{dK} \left (S-K\right)=-\delta \left (S-K\right) $
Magic is in the chain's user avatar
1 vote

Estimating realised gains given growth rate and churn

Yes, there are sound ways to address this problem. And, depending on the level of realism required and your goals, you will need to think a lot more to devise an acceptable strategy. Bird's eye view ...
g g's user avatar
  • 1,973
1 vote

Verifying an identity of an equation for Black Scholes formula

The numerator is $$ S N'(d_1) = S \frac{1}{\sqrt{2 \pi}} \exp(-1/2 d_1^2) = \\ S \frac{1}{\sqrt{2 \pi}} \exp\left(- \frac12 \left(\log(S/E)+ (r + \frac12 \sigma^2(T-t)) \right)^2 / \sigma^2 (T-t) \...
Richi Wa's user avatar
  • 13.6k
1 vote

Should I use an arithmetic or a geometric calculation for the Sharpe Ratio?

I didn't understand this either but after some googleing I understood the importance of geometric mean returns! The most stuff on the internet is in text form which is not easy to understand. So I ...
DataAdventurer's user avatar
1 vote
Accepted

Multi year performance evaluations

No, if you want to calculate the annualized sharpe ratio you should 1) make sure that your risk free rate is in monthly terms (so if it's 3% annual you need to put .03/12 in cell KX32) 2) only ...
Jared M's user avatar
  • 253
1 vote

Discrepancy between total shareholder return and return calculated using adjusted share price?

RETURN Firstly, return is based upon the amount gained over a period of time. So your calculation for a percentage return should actually be be: (Sale price - Cost basis)/Cost Basis. TOTAL RETURN ...
Richard at NorgateData's user avatar
1 vote

PRIIPs Stress Scenario for Category 2

I think they messed up with the dataset. The dates are weird and the rolling volatilities do not match. They suddenly take 2 year history instead of 5. May I please ask why did you not take full ...
Matúš Košík's user avatar
1 vote

Calculating the ideal initial capital value to optimize a growth model

At the end of each year you have wealth $X_t$ in an investment account which grows at the rate $r$. At the beginning of each year you withdraw the amount $W$ and keep it in cash to pay for your ...
nbbo2's user avatar
  • 10.9k

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