7
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What are some interesting recent machine learning related developments in the QF domain?
Sirignano, J., & Cont, R. (2019) (High-frequency stock forecasting):
The authors apply a large-scale deep learning model (recurrent neural network with Long Short-term Memory units) to high-...
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6
votes
Discounted price of an option
The process $Y_t:=(S_t-K)^+$ cannot be the price of a traded asset because of Jensen's inequality. Instead, it is the price of the option which is a martingale.
In the Black-Scholes model, the ...
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5
votes
What are some interesting recent machine learning related developments in the QF domain?
Empirical Asset Pricing via Machine Learning (2020) by Gu, Kelly and Xiu
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5
votes
Accepted
What does implied volatility say about the underlying?
A vol surface displays implied volatilities (IVOL) for various tenors and strikes. It can be displayed in several ways, with the two most common being:
Moneyness
Delta
Interest rate options are a ...
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5
votes
Pricing a bond denominated in USD but issued in Europe
If this German company already has other similar debts denominated in USD, and you are able to observe the yields at which they trade, then you can just interpolate their yields to the maturity of ...
- 11.3k
4
votes
pricing in the case where payment currency and collateral currency are different?
TO answer the question in the comment. Suppose you have a USD cash flow receivable in 5yrs and you are trying to calculate the PV. You need to know the interest rate that you are paying on the EUR ...
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3
votes
Accepted
What are the quantitative models for modelling the SOFR rate, the IR products when Libor rates end
The reference you want is https://www.newyorkfed.org/arrc
The conversion to SOFR from LIBOR was well worked and well publicised, concerning the transition issues and what were the ultimate ...
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3
votes
Accepted
Does every process need to be a martingale under martingale measure?
The fundamental theory says only that the ratio of asset prices A/B under the measure associated with B, is a martingale. The short rate r is not an asset.
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3
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Pricing a bond denominated in USD but issued in Europe
You should use the US Treasury yields but this is probably not the only thing you should take into account in pricing that bond.
I don't know if the bond you are trying to price would strictly qualify ...
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Practically, are the prices of 0-strike European calls and stock identical?
I do not think anyone actually trades this but in any case, it would follow standard pricing logics.
If you have a strike of truly 0, volatility does not matter anymore. The expected future value of ...
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3
votes
How to fundamentally value cryptocurrencies?
Investing in cryptocurrencies is a wild ride. There is obviously a lot of speculation involved but my question is another one: what are good models to evaluate the fundamental value of ...
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3
votes
Accepted
How to fundamentally value cryptocurrencies?
Having been to a Business school (not sure whether that's a badge of honor or a badge of shame :), I've covered the "established" valuation models, from comparative analysis, to DCF, to CAPM,...
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2
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Why is there a lot of focus on derivatives pricing and much less on stock pricing?
I think the comment provided by nbbo2 answers your question fairly well and is pointing in the right direction. To make the answer more concrete, it's important to note that unlike with other types of ...
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2
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Vanna vs volga and vega
I am not sure I agree with @dm63 - this is way too long for a comment, not necessarily a definitive answer though to be honest. I think the fungibility argument is mainly applied / applicable for ...
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2
votes
Convergence of crypto perpetual futures
In theory there seems to be an arbitrage. But in practice if you want to build a model to benefit from it, you should take into account the following factors:
The rate is small so your position size ...
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2
votes
Pricing a bond denominated in USD but issued in Europe
I would say price the bonds using USD yield curve. Many of these USD debt bonds (Sovereign and EM) trade as a spread to UST benchmark bonds.
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2
votes
Calibration of Local or Stochastic Volatility Models to Prices vs Implied Volatilities
I assume since "implied volatilities behave 'better' than prices",
that would mean that the calibrated model parameters using option
prices would be more inaccurate?
I'm not quite sure what ...
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2
votes
Basic question/clarification about the LOOP
You are missing something, you should interpret $\tau$ as every point in time from $t$ to maturity (in the case of your example). Clearly your statement only holds true for $\tau = maturity$. In any ...
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1
vote
Quantlib SOFR swap repricing across 2 different dates
I realise the question is specifically about Quantlib, but I wanted to highlight an answer using Rateslib for Python, the answer is around 1.05mm USD as you predicted.
Setup your initial curve (note I ...
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vote
pricing in the case where payment currency and collateral currency are different?
If I recall Cooking with collateral by Piterbarg (https://www.risk.net/derivatives/2194249/cooking-collateral) has the details but you effectively need to use FX swaps to get the basis adjust discount ...
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vote
Bond Option: Cash Price or Quoted Price as Underlying
Bond options are traded over the counter. Whatever the parties want to agree to, they can write down on their term sheet. Bond options are also not very common these days, but I've seen a few.
The ...
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1
vote
How to price PIK (paid-in-kind) coupon bond with option by the borrower to pay cash?
I faced exactly the same issue. I don't know a great answer, but I'll tell you what I did.
Practically, the PIK coupons are almost always fixed (but I have seen floater PIKs too). The decision by the ...
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1
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How to fundamentally value cryptocurrencies?
The current paper (June 2022) "An Investor’s Guide to Crypto" from several authors from Duke University and MAN Group (https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4124576) provides a ...
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How to fundamentally value cryptocurrencies?
Take a look at PlanB@100trillionUSD's article on the Stock-to-Flow (S2F) model.
In short, the idea is that the value of bitcoin is tied to its scarcity, which can be quantified by Stock-to-Flow
$$ ...
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Implementing a Fast Fourier Transform for Option Pricing
I found this jupyter notebook on Github extremely helpful for applying Fourier transform methods to option pricing. Python code is all available.
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