22
votes
Accepted
Negative price of oil
The negative price that was all over the news was the front contract for WTI (West Texas Intermediate) futures that went to -40 and had a last trade date of 21.04.2020, so today.
This movement was ...
- 5,895
6
votes
Clean vs. Dirty Price and its impact on duration
By definition, modified duration is
$$ D_\text{mod} = \frac{1}{P} \frac{dP}{dy} $$
where $P$ is the dirty price of a bond.
Clean price is the standard quoting convention for the vast majority of bond ...
- 11.9k
5
votes
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Are there any standards for the precision of stocks prices, amount of stocks etc.?
Giving my 2 cents on your questions: I believe the amount of decimal places is dependent on (the exchange and) the type of financial product. However, an Investopedia article writes:
In 2005, the ...
- 4,921
4
votes
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Brownian motion Price and Hedge problem
Step 1: Know your distribution
Since $\int_0^t W_s\mathrm{d}s\sim N\left(0,\frac{1}{3}t^3\right)$, we have
\begin{align*}
S_t &= S_0 \exp\left( rt-\frac{1}{6}\sigma^2 t^3 + \sigma \int_0^t W_s\...
- 16.4k
4
votes
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Why using mid price to compute mark-to-market P&L if it is less accurate than using bid/offer price?
This is an excellent philosophical question.
Recall that the goal of mark to market is to predict the P&L if we unwound this position in an orderly market.
Suppose that you're in a very convinient ...
- 13.2k
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 ...
- 2,292
4
votes
Forward price confusion
Note that forwards can behave differently in different markets; let's assume we're talking about an equity market and specifically on some stock $S(t)$ paying a continuous dividend of $q$. Also, let's ...
- 764
4
votes
Forward price confusion
Less quantitative answer:
Suppose I want to enter into a contract to buy corn in 6 months. The seller will look at the current price of corn, among other factors, and make an offer for which they are ...
- 1,540
3
votes
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How would a FX price probability distibution function look?
You can extract the risk neutral density implied by option prices and have a look at that. The implied probabilities are given by the prices of butterfly spreads in the market. This is common ...
- 1,029
3
votes
Accepted
What should basic statistical analysis of different price forecasts contain
Hi: Based on your question, it sounds like the Diebold-Mariano test might be perfect for your case. It doesn't require any sophisticated assumptions about models or processes etc. All one needs are ...
- 1,178
3
votes
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What does it mean by "A one period bond is a claim to a unit payoff." from Cochrane?
A bond repays its notional face value (plus interest sometimes), not the original purchase price. Do not assume the the price you pay for a bond is its face value.
Sometimes a law or a regulation (...
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3
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What does it mean by "A one period bond is a claim to a unit payoff." from Cochrane?
That simply means that a bond pays one unit of the currency in any state (regardless what happens in the future, i.e. there is no default risk about the payoff of a bond).
So you will receive 1 in ...
- 16.4k
3
votes
The Dog That Did Not Bark?
As it was pointed above the phrase is taken from Sherlock Holme's novel. It describes the case when the dog should have bark, but didn't. Now if we come to the Cochrane paper.
He introduces the system ...
- 87
3
votes
Difference in weekly and monthly data
If anyone else is wondering what the actual answer is, I've figured it out. When viewing as weekly or monthly data, yahoo displays the Open, Low, High, Close, Vol., and Adj. Close "as of the end ...
- 31
3
votes
Accepted
Fill prices on limit and market orders
In the first case it is a "race condition": whichever order is received first (even if it is only one microsecond before the other) will populate the Book and the second limit order will execute ...
- 11.8k
3
votes
Why using mid price to compute mark-to-market P&L if it is less accurate than using bid/offer price?
Most banks use mid market to compute daily MTM p/l whilst maintaining a reserve to account for liquidation costs. The latter is usually recalculated periodically and is indeed a function of market ...
- 17.9k
3
votes
Resources to learn the applications of SVD in quant finance?
An example of typical use of SVD:
Suppose you have a square matrix. You would like to apply Cholesky decomposition. But Cholesky complains that the matrix is not positive definite. So you call SVD ...
- 13.2k
3
votes
Accepted
Exchange vs Order-Driven vs Quote -Driven
Some terminology, including terms like "quotes" and "orders", has become obsolete in the modern equity or futures markets.
However, "quote-driven" or "order-driven&...
- 2,705
3
votes
Accepted
Why some stocks not traded today?
There's a common misconception that everything must trade every day / hour / minute when the market is open.
Quite simply, the price is in equilibrium - no new buyers willing to push the bid higher ...
- 1,355
2
votes
Question about order book and single player interference
This is a complex question. First of all, you need to know that orderbook manipulation is illegal. That being said, I can rephrase you question as:
given an orderbook
say a new sell order of size $...
- 12.6k
2
votes
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Relation between price changes and trading volume (market impact)
See Kandel and Pearson (1995) and Kim and Verrecchia (1991, 1994, 1997).
- 160
2
votes
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How does after-hours trading affect the next session prices?
Yes, prices change overnight. A great reference on the issue is Lou, Polk and Spouras (2018).
They basically argue that there are investors who prefer to trade overnight whereas other prefer to trade ...
- 8,621
2
votes
Determining the probability of arriving at a price by a time T
Regarding the probability of a stock exceeding a certain level: let's assume for simplicity we are in a Black-Scholes world (but similar reasoning for other models)
Assuming you believe a GBM is a ...
- 225
2
votes
How exactly money moves from one forex to another so prices are the same across exchanges?
Banks and arbitrageurs move money around with limited difficulty. That's one of their main functions. They move enormous volumes daily.
Furthermore, I believe that for retail markets, whenever there ...
- 8,620
2
votes
Accepted
What is the meaning of multiplying price of contingent claim with e.g consumption level?
You can assume two periods economy: calling them today and tomorrow is a convenient representation that is easy to relate to. Today is certain, tomorrow is not- the number of states is known, and the ...
- 6,242
2
votes
How do I get a good mid-price?
This is an implied mid price.
If an illiquid market and/or quiet time of day to snap bid and ask prices, you may have an implied mid that is skewed (consider the ...
- 979
2
votes
Accepted
Net volume reference for uptick and downtick
The classical Net Volume indicator operates on OHLCV bars, not on raw trades.
Uptick is registered when the bar's close is higher than open
Downtick is registered when the bar's close is lower than ...
- 1,170
2
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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 ...
- 7,140
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" ...
- 13.2k
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