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8 votes

Preferred Option pricing model

General Comment: In industry, you're effectively an engineer/mechanic. You choose the best tool for the job, and there is no 1 tool that works with everything because they all have different benefits ...
3 votes

Geometric brownian motion vs. Ornstein Uhlenbeck

A more abstract yet simple way of looking at this may help. Consider a generic diffusion $dY = (a_t - b_t Y_t) dt + \sigma_t dW_t$, where $Y_t$ is either the modelled quantity itself or $Y_t = \log{...
achirikhin's user avatar
3 votes

Target variables in high frequency trading

What you need depend on what you are trying to do (note that the rest of the explanation is very simplified). If your target is to execute a big order, you can use a short term mid price prediction to ...
Alex D's user avatar
  • 51
2 votes

How are order book and trade data consolidated/distilled into a more(?) tractable form for modeling?

Usually you need orderbook snapshot and update data to take into account latency, slippage, market impact etc. All these things are time sensitive and data intensive. The orderbook data itself is ...
quantinho's user avatar
  • 493
1 vote

Simulating the Term Structure of Interest Rates in the CIR model

A theoretically sound IR process always reflects today's yield curve. Compounding short rates does not sound reasonable, say today's short rate is 1% and the 1 month spot is 2%, you are way off ...
Arshdeep's user avatar
  • 2,451
1 vote

Is the impact of "small" orders on market dynamics more than is commonly assumed?

If the assumption that a "small" order does not affect price dynamics is not false. Nevertheless, in the context of backtest, they are other aspects that cannot be neglected: During a back, ...
lehalle's user avatar
  • 12.2k
1 vote

Credit Rating vs Bond Yield

One potential solution would be to look at a high yield bond index, as suggested by the OP. Both J.P. Morgan and BofA publish sub-indexes based on issuer rating, for instance (think Barclay's might ...
user68318's user avatar
  • 156

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