6 votes
Accepted

Determine the right order size with market making strategy

"I need to get an algo or a formula to determine to right quantity to trade each time I place the pair (limit_buy_order, limit_sell_order)." Actually, you need a formula for determination of the ...
Alexey Golyshev's user avatar
6 votes
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CAPM and factor modeling: Machine learning

1) In an academic sense could it be enough to use ML to create a new factor portfolio? The original FF papers (92,93) said something deep because they contradicted the dominant theory of the day. ...
jd8's user avatar
  • 468
5 votes
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Formula for conditional expectation. Related to the Fundamental Theorems of Asset Pricing

Let define $\mathbb{Q}$ and $\mathbb{P}$ two equivalent probabilities on a filtered space $(\Omega,(\mathcal{F}_t)_{t\geq 0})$ Let define $Z_T=\frac{d\mathbb{Q}}{d\mathbb{P}}$ restricted to $\mathcal{...
M. Jeunesse's user avatar
  • 2,422
5 votes
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Do we have a Brownian motion

Aside from the independence requirement for the increments, that is, the independence of $X_{s+t}-X_s$ and $\mathcal{F}_s$, you can check whether the increment $X_{s+t}-X_s$ has the distribution of $N(...
Gordon's user avatar
  • 21.1k
5 votes

Step by Step Guide to Learn Quantitative Finance

This thread will inevitably close because it doesn't meet community guidelines, but I respect your passion in this field and my best suggestion for you is that if you're trying to emulate a MFE ...
madilyn's user avatar
  • 5,230
5 votes

bank issuing structured products

The specific quote you reference from the article is from a section explaining why/how the current environment came to be. Note that 'current environment' in the context of this article is almost 16 ...
amdopt's user avatar
  • 4,738
4 votes
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continuously compound forward rate formula

In the simple case, you have as per first equation on your last slide: $\frac{P(t,T_0)}{P(t,T)}=1+\delta F(t,T_0, T)$ The continuous time equivalent, assuming constant piecewise rate, as per your ...
Magic is in the chain's user avatar
3 votes
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eurodollar future

all (STIR) short term interest rate futures are cash settled [see comment, STIR in this context is -IBOR futures which are the most common in the largest markets] If a party sells 5 contracts at a ...
Attack68's user avatar
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3 votes
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How to prove we have a $\mathbb{Q}$-Brownian motion?

You basically need to show ii') and iii'), as they automatically imply ii) and iii). Note that, since \begin{align*} \frac{dQ}{dP}\big|_T = \exp\Big(-\gamma W_T - \frac{1}{2} \gamma^2 T\Big), \end{...
Gordon's user avatar
  • 21.1k
3 votes

Where can I find ideas for strategies?

There are lots of different sources out there where you can find various quantitative strategies. Usually, different blog aggregators like https://www.r-bloggers.com post on their websites ...
AK88's user avatar
  • 1,840
3 votes
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Books on financial instruments?

It depends on your knowledge and skills. Any book that attempts to cover a wide range of financial product is most likely not very technical. You should choose a book that suits your purpose. For ...
SmallChess's user avatar
  • 2,265
3 votes

Utility functions, are they used in the real world by hedge funds, banks, etc?

See also utility indifference pricing (Henderson, V., & Hobson, D. (2004) Utility Indifference Pricing - An Overview http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.321.994&rep=rep1&...
Antoine Conze's user avatar
3 votes

What model to price interest rate option if we have views on trend of forward interest rate?

Interest rate options should be priced with risk neutral methods regardless of your opinion of interest rate trends. If you have a view on interest rates, you can express it by taking a delta ...
dm63's user avatar
  • 16.9k
3 votes

What's the interpretation of the probability of default implied from CDS spreads?

CDS quotes are observable. But none of: probabilities of default, hazard rates, loss given default/recovery, etc are observable. To get some kind of (risk-neutral) probabilities of default, many ...
Dimitri Vulis's user avatar
2 votes
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Law of One price and the Inconcistent pricing strategy

Assume the law of one price. We show that there does not exist an inconsistent pricing strategy. Suppose that $\phi$ is an inconsistent self-financing trading strategy, that is, $V_T(\phi)\equiv 0$ ...
Gordon's user avatar
  • 21.1k
2 votes
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Show that there exists a fully invested portfolio such that the covariance between their returns is zero

There is a procedure for finding $T^*$ starting from the portfolio $T$ on the efficient frontier, such that $cov(T^*,T)=0$: From the point $T$ draw a line thorough the point $C$ (which represents the ...
Alex C's user avatar
  • 9,372
2 votes
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What is the value this "special" forward contract at maturity?

It seems part of the instruction is there to trouble you. If you have a contract forcing you to buy a stock $S$ at $t=5$ for 2\$, then the value of your contract at maturity is by definition $S_5 -2$....
SRKX's user avatar
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2 votes
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If there is an inconsistent pricing strategy then by defintion we have strong arbitrage

We assume that $V_0(\phi)<0$; otherwise, we can consider the strategy $-\phi$. Then, we buy extra $-V_0(\phi)/S_0^0$ share of the risk-free asset $S^0$, from the $k+1$ assets $S^0, S^1,\ldots, S^k$,...
Gordon's user avatar
  • 21.1k
2 votes

Funded equity collars and margin loans

Further, a key element is overlooked in these answers. Although the share pledge under the collar transaction does eliminate most of the credit risk borne by the investment bank - it is still a loan. ...
Anonymous's user avatar
2 votes

Funded equity collars and margin loans

There is no credit risk because the client pledges the underlying shares as collateral to the funded collar. This is not explained in the article. The structure is built in such a way that the value ...
Ivan's user avatar
  • 1,376
2 votes
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What is martingle measure with risk free asset in numeraire or stock price in numeraire

First of all it is martingale not martangale. Secondly it is numeraire not numerator. It sounds like you need to study the basics of risk- neutral pricing. A hint would be that the ratio of two ...
dm63's user avatar
  • 16.9k
2 votes
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All martingale measures price the attainable claim equally

For Question 1, let $\phi$ be a replicating strategy, that is, $V_T(\phi) = X$. Then for any two martingale measures $u$ and $v$, from the First Fundamental Theorem of Asset Pricing, \begin{align*} ...
Gordon's user avatar
  • 21.1k
2 votes
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Forward Contract Price on Zero Coupon Bond

To calculate the forward price $F$ of a zero coupon bond at t=4, note that arbitrage considerations imply that $$Z(0,10)= Z(0,4) F$$. This essentially means that investing in a 4 year zero coupon ...
dm63's user avatar
  • 16.9k
2 votes

bank issuing structured products

Preamble It is in general true that structured products can be decomposed in simpler products (linear and options for example). Regardless of the decomposition of the specific product, it is typical ...
LePiddu's user avatar
  • 393
2 votes

What is "signal" in quant investing?

As people in the comments noted, signal broadly refers to a trigger variable that denotes an investment decision. This is normally a boolean variable (i.e. 0 or 1) but could be continuous (0 to 1) or ...
Mike's user avatar
  • 241
2 votes

Can you use the Svensson model to fit a smoothed curve for yields on coupon paying bonds rather than spot rates?

It is in fact more common to fit this kind of model to coupon bonds. After all, the purpose of such curve fitting exercise is typically to obtain smoothed zero coupon curves (and by extension, ...
Helin's user avatar
  • 11.6k
2 votes

For a trade to occur, should the ask price EXACTLY match the bid price, down to the last decimal point?

All exchanges have minimum price fluctuations, or tick sizes, which is the smallest increment at which prices are discrete. The buyers bid price must match the sellers ask price down to the tick size. ...
Thomas Boyd's user avatar
1 vote
Accepted

How to Calculate Stock Return with Stock Bonuses and Rights?

Here are some possible approaches: https://www.theice.com/publicdocs/futures/Ratio_Method.pdf https://financial.thomsonreuters.com/content/dam/openweb/documents/pdf/financial/corporate-actions-...
Magic is in the chain's user avatar
1 vote

Determine the right order size with market making strategy

As the author suggested you need an upper limit $X$ on the dollar value of the inventory you are willing to hold. This depends on the amount of capital that you are willing to employ in the market-...
Alex C's user avatar
  • 9,372

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