18
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Processes used in quant finance
Here is a short list (to be edited and improved - community wiki) :
Standard brownian motion (also called Wiener process) for which:
$d\, W_t \sim \mathcal N(0, \sqrt{d t})$
Geometric brownian ...
18
votes
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If the volatility of pounds/euros = .2 do we know anything about the volatility of euros/pounds?
The trick here is that you're not asking about $\mathrm{Var}\left(\frac1X\right)$.
Imagine one currency is a stock $S$ and the other a stock $Q$. Then the volatility of the exchange is the square root ...
- 333
10
votes
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FX forward with stochastic interest rates pricing
The formula $F^X(t,T) = E_t^d\left(X_T \right)$, under the domestic risk-neutral measure, is problematic. Note that, at time $t$, the forward exchange rate $F^X(t,T)$, for maturity $T$, is the ...
- 21k
10
votes
Is this how stock trading works?
In January 2020, Matteo Aquilina, Eric Budish, and Peter O’Neill from Britain's Financial Conduct Authority published this study, illustrating how "low latency" market participants can make ...
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9
votes
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Why do FX Swaps have Interest Rate Risk?
An FX Swap can be described as "borrowing in one currency and lending in another". When put this way it is clear that it has something to do with interest rates in the two currencies. You will be very ...
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9
votes
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Inflation effect on FX rates
Edit: adding some references (main body is untouched)
Kenneth Rogoff and Richard Meese received an incredulous reaction to their now-famous paper showing that random-walk (RW) forecasts outperform ...
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9
votes
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How to Bloomberg compute the implied Yield ? What is FX swap basis spread?
1 ) The value 1.062732 is the Forward outright as quoted on FRD. Your pricing source is BGN (Bloomberg Generic New York). That ...
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8
votes
FX Option pricing on Forward vs. Spot
As long as you price on the outright forward and not on forward points (which is how most forwards are quoted in the market), this is essentially the same coin, looked at from different sides. If you ...
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8
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Pricing of a Foreign Exchange Vanilla Option
Be careful of your rate conventions!
The issue here is that all your rates are expected to be in units of domestic vs 1 unit of foreign. So for example USDCAD is 1.3347, you really need to be using 1/...
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Where can someone get free (or very cheap) high frequency tick forex data?
Dukascopy offers historical tick data. Through their historical data website you can download what you want, but registration is required, and lots of manual clicking.
However if you are comfortable ...
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8
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When to Choose FX Swap or Forward
An FX swap exposes the user to a risk that is intrinsic to the interest rate differentials and supply and demand factors of one currency relative to another, but fundamentally there is negligible ...
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8
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Spot/Next and Tom/Next FX forward swaps
Let’s say the settlement period is T+2, and you made a deal on the 8/10/2018. The spot date would be 10/10/2018 (assuming no holidays!), that’s when the physical exchange would happen. Now if you don’...
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Is this how stock trading works?
You would definitely have some advantage. High Frequency Trading is all about speed and the fastest traders wins. Oftentimes, winner takes all.
The blog Sniper in Mahwah & friends digs into the ...
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8
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Dynamics of FX rate
I am answering now instead of commenting. The rate of change in FX is naturally forward looking in this case.
What you confuse is what happened to Spot due to changes in interest rate environments ...
- 8,143
7
votes
How do I get a good mid-price?
Ask minus bid has nothing to do with the mid price - it is the spread.
Generally you see a collection of bid/offer orders resting on different price levels. In the simplest case, you just see one bid ...
- 5,891
7
votes
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Calculate strike from Black Scholes delta
This is a little more complicated than the answer provided above since this is FX and the convention for determining the strike matters.
https://www.researchgate.net/publication/...
7
votes
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EUR/CHF fx rate drop on the 15th of January 2015
What happened was totally unexpected end of peg against the euro @ 1.2CHF regime that Swiss central bank aborted. See some articles about it. As far as I know nobody in the markets knew, there was no ...
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7
votes
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Understanding the GDAX price chart
The top chart is called a 'candle stick chart' or 'OHLC candlestick' or 'OHLC bar chart' http://multicharts.com/trading-charts
When the price goes down during a time interval (from O to C) the box is ...
- 10.9k
7
votes
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FX Option with Different Premium Currency
Let $X_t^{gbp\rightarrow usd}$ and $X_t^{chf\rightarrow usd}$ be the respective exchanges rates from one unit of GBP and CHF to units of USD. Depending on the option contractual specification, the ...
- 21k
7
votes
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Converting time bars to tick bars or volume bars in python
As mentioned in my comment, tick data is the individual quotes and trades; Yahoo only has daily data. As an analogy, you can always make a high-definition photo more blurry and pixelated, but you can'...
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6
votes
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Pricing foreign currency bonds - which approach is more theoretically "sound"?
In #2, you can use FX forwards to convert your JPY cashflows to USD but it is more common in practice to use a cross-currency swap for this purpose. Indeed, the advantage of the latter is that it ...
- 507
6
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Pricing of a Foreign Exchange Vanilla Option
The answer given is mostly wrong: @msitt uses a convoluted way without explicitly mentioning it (put-call symmetry) to actually give the price of a USD Put, not of a USD Call as requested. Here is a ...
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6
votes
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Does Yahoo/Google no longer support web-scraping of FOREX data?
Yahoo has changed their site structure. The new download URLs look like this:
https://query1.finance.yahoo.com/v7/finance/download/MSFT?period1=1463461200&period2=1494910800&interval=1d&...
6
votes
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Strike / delta relationship for FX options
In FX world, the ATM strike is the delta-neutral strike, that is, the absolute delta values of a call and the corresponding put are the same. Moreover, the delta can be premium adjusted or not ...
- 21k
6
votes
Which data sources are available for cryptocurrencies?
As mentioned in other answers, Coinmarketcap and Bitcoincharts are two options. The data they provide is also available from Quandl too.
The only issue is, that data has daily frequency and is only ...
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6
votes
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What is the formula for calculating fair value of currency futures?
$$F = Spot \times e^{(\text{local interest rate} - \text{foreign interest rate}) \times T}$$
where $Spot$ = AUD per dollars.
$T$ is the time to maturity of the contract (in years). So for example ...
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6
votes
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Group name for currencies, equities and other financial products
The most universal name that any "currency (pair)", "equities" or "futures" falls under is either a product or an instrument.
In some ways I prefer product because you can have 2 exchanges allowing ...
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Pricing an fx option in the same currency
Let $P^d$ and $P^f$ denote the respective USD and EUR risk-neutral measures. We assume that, under the USD risk-neutral measure,
\begin{align*}
dS_t = S_t \Big(\big(r^d-r^f \big)dt +\sigma dW_t \Big),
...
- 21k
6
votes
Relation between ATM, RR and BF
The ATM is an outright position (long 50 delta put and 50 delta call) so the main exposure is vega. It is the riskiest of the three, and demands a higher bid-offer spread from market makers to ...
- 5,891
6
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What does **Long Call EURUSD** mean?
First please keep in mind that EUR (and GBP) are quoted "cable". So if the USD EUR exchange rate is quoted as 1.1, for example, that means that (quotation or countercurrency) USD 1.1 = (base currency)...
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