20 votes

Black Scholes differential

In general, you won't be able to replicate the option by a portfolio of the form $\Delta_t S_t + B_t$, though it is possible to do so with a portfolio of the form $\Delta_t^1 S_t + \Delta_t^2B_t$; see ...
Gordon's user avatar
  • 21.1k
13 votes

Theoretical limits for contango and backwardation

This is a basic fact about futures trading and the storage of commodities. The phrase that was used by futures traders in the old days (and probably still today) was "the contango is limited by the ...
Alex C's user avatar
  • 9,372
7 votes
Accepted

Algorithmic Trading: Python vs SQL

Python has lots of excellent libraries to compute Technical indicators for you, ta and ta-lib are great. These libraries have ...
Hamish Gibson's user avatar
7 votes

Where can I find detailed information of famous quant companies such as Renaissance Technologies?

Most RIAs have to file a Form ADV, through which some information is publicly available via SEC's website. Further, large RIAs are sometimes involved in high profile civil lawsuits through which ...
databento's user avatar
  • 2,468
7 votes
Accepted

Explanation for Different Piecewise Yield Term Structures from QuantLib Python

When you bootstrap a curve, you get discount factors/zero rates for the maturities of the instruments you supplied. So in practice, you get points, and not a "curve". After you have built ...
David Duarte's user avatar
  • 5,805
7 votes

Probability of success given expected return and volatility

It's probably a simple textbook example to illustrate Taleb's point. Suppose $\text{d}S_t=\mu S_t \text{d}t+\sigma S_t \text{d}W_t$ with $\mu=0.15$ and $\sigma=0.1$. By Itô's lemma, the log return ...
Kevin's user avatar
  • 15.7k
6 votes
Accepted

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

Quantum Mechanics and Economics... What

I have had a read through the paper that you quoted and have the following comments which you might find helpful: (I am formally trained in QM, so hopefully there shouldn't be any errors in the ...
oliversm's user avatar
  • 1,389
5 votes

Method to combine trading signals to achieve higher sharpe

There is no guarantee you can improve the Sharpe in this case, depending on the correlation of the returns streams. For the two asset case (you can model your strategies as assets and take a linear ...
steveo'america's user avatar
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
Accepted

Mark Joshi Quantitative finance numerical techiniques, writting an algorithm that produces a random variable

Yes. Mark Joshi's book is a good preparation. For this question you are given some function random() yielding a uniform random number and what we want is a function next() which yields realizations ...
JaFa's user avatar
  • 164
5 votes
Accepted

Who trades exchange options in practice (Margrabe's formula)?

Yes, you can say they are traded on listed options, but only for a few limited markets, and not that liquid relative to options on a single asset. For instance, the commodity futures space, there ...
uday's user avatar
  • 792
5 votes

Differencing vs Detrending financial time series

Hi: It depends on what the DGP of the original process is. Is the process trend stationary or difference stationary ? If it's trend stationary then de-trending is the way to go. If it's difference ...
mark leeds's user avatar
  • 1,102
5 votes

Curve fitting under different regions and stitching

I hope I understood you correctly and that the following thoughts help you a bit. Reference point: Univariate curve fitting using splines With a univariate function $f(x)$ you can perform 1D spline ...
Kermittfrog's user avatar
  • 6,535
5 votes

Reflection principle of the Brownian motion

I'll only show it for $M_T = \max_{u\leq T} B_u$ and $(x,h)$-domain $$ \{ h> 0, h > x \}. $$ By the reflection principle we have: $$ P\left( B_T < x, M_T > h \right) = P\left( 2h - B_T &...
ir7's user avatar
  • 5,043
4 votes
Accepted

Free or Relatively Less Pricey Quant Finance courses online

Just an update on my playlist, It has 33 videos now, roughly 3x more vids. I have included some more general economics and machine learning and programming vids, which have relevant applications in Q ...
4 votes
Accepted

Barrier Option from binomial tree

I'm assuming you're talking about a European option. I did a similar problem for my homework recently, I used the in-out parity for pricing the up and in barrier option. Basically European Option = ...
user23564's user avatar
  • 186
4 votes

Carry vs Roll-Down on a zero-coupon IRS

(This is my opinion; someone is likely to disagee). I like to think of the carry as the predictable part (e.g. the coupon that accrues daily) and the rolldown as the stochastic part (the curves moved ...
Dimitri Vulis's user avatar
4 votes
Accepted

Quantitative risk management for energy markets

The book "Managing Energy Risk An Integrated View on Power and Other Energy Markets" by Burger et al. (2014) may be very helpful as it not only introduces the relevant notions, but does so directly ...
sp59b2's user avatar
  • 197
4 votes

Algorithmic Trading: Python vs SQL

You said you're developing an algorithmic trading system. First, I'd suggest maybe consider an off-the-shelf product that will let you do some trading without ...
Adam Hughes's user avatar
4 votes
Accepted

How does Linear-Exponential Loss (Linex) function tend towards Quadratic Loss function?

It just needs the power series(Maclaurin) expansion: $e^{x}=1+x+\frac{x^2}{2!}+\frac{x^3}{3!}+\dots$ Take the Linex function: $L\left(y,\overset{\wedge}{y}\right)=\frac{2}{a^2}\left[e^{a\left(y-\...
Magic is in the chain's user avatar
4 votes

forward variances under rough bergomi

Maybe this deck by Jim Gatheral would help get the intuition, see slides 10 and following. The dynamics you mentioned is obtained by: Looking at the Bergomi dynamics for the forward variance process; ...
Quantuple's user avatar
  • 14.6k
4 votes

Multi-Period Contribution

Thanks for the example. It is exactly like my comment. Look at your weights after the first period. Are they really 80% and 20%? Lets say you have £100 to invest. £80 is invested in product A. That ...
AKdemy's user avatar
  • 9,079
4 votes

Where can I find detailed information of famous quant companies such as Renaissance Technologies?

For Rentech, try the Greg Zuckerman book, "The Man Who Solved the Market: How Jim Simons Launched the Quant Revolution". HSBC Hedge Fund Report might be of use for other funds.
user42108's user avatar
  • 2,252
4 votes
Accepted

Pricing a Forward Rate Agreement using QuantLib Python

For a 3x6 FRA, you probably want to write something like: ...
Luigi Ballabio's user avatar
3 votes

Free or Relatively Less Pricey Quant Finance courses online

I have a playlist on youtube I made and will continue updating: https://www.youtube.com/watch?v=jXFNpDcYOxM&list=PLqMiStH7exaXmQqV7y-tg68f2ZYZK3Yur
3 votes
Accepted

Logarithmic price defined as the midpoint of the log bid and ask : Simple Clarification

I reckon it's the $\frac{log(ASK)+log(BID)}{2}$, just simple arithmetic average as it makes sense, also considering logarithmic returns, when you can only take a differences from log prices. Also, ...
Jan Sila's user avatar
  • 732
3 votes

Mark Joshi Quantitative finance numerical techiniques, writting an algorithm that produces a random variable

I am sure you have seen the $n=2$ case: Write a program that returns "Yes" with probability p and "No" otherwise. You are given a function runif(), which returns a random number between 0 and 1. ...
nbbo2's user avatar
  • 11.2k
3 votes
Accepted

Disadvantages of large panel

In general, more data is better than less data. On the topic of your specific scenario, you want to cluster by date or use some other procedure to produce consistent standard errors in the presence ...
Matthew Gunn's user avatar
  • 6,934

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