11
votes
Accepted
volatility of a mid curve option
A swaption in which the underlying swap starts at a date materially after the expiration date is called a midcurve swaption. The implied volatilities of these can not be obtained from the regular ...
- 15.2k
9
votes
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What is the name and payoff of this exotic option (where the holder can lock in a price)?
The option described is called a "Shout" option.
- 5,517
8
votes
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Simple example of a funding valuation adjustment?
To discuss Funding Valuation Adjustments (FVA) it is first necessary to describe a situation in which such an adjustment would be needed. In here we will take as an example collateral mismatches, ...
- 7,468
7
votes
Accepted
How to trade interest rate futures calendar spread?
Trading bond futures calendar spread is actually a very involved exercise, with many moving parts. But first things first, recall that bond futures price is approximately:
$$ F = \text{spot price} - \...
- 11.1k
7
votes
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Why must a riskless portfolio earn the risk-free rate?
If you imagine you have two risk-less assets that have a unit payoff at maturity $V_1(T) = V_2(T) = 1$ but their present value is not equal, e.g. $V_1(t) < V_2(t)$. You buy the cheaper, sell the ...
- 5,821
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 ...
- 487
6
votes
Valuation of repurchase agreement (classic repo)
You are right in that in repo, one sells a collateral to another party and agrees to repurchase it at a fixed price in the future, and is essentially a collateralised borrowing. The difference between ...
- 6,104
5
votes
Calculate Average Price, Cost, (Un)Realized P&L of a position based on executed trades
Using Andy Flury answer and bit polishing it gives following Python class for PnL calculator:
...
- 221
5
votes
Accepted
IPO Valuation: Share Pricing and Number of Shares
IPO valuation is super sophisticated. There is usually a Managing Underwriter, who has a team of analysts/asset pricers/investment bankers/lawyers/etc. with complicated terms and they go and value a ...
- 460
4
votes
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How to correctly calculate P/E ratio of Singapore stocks?
Just figured it out with the help from someone else... The market cap is in Singapore dollar because it's traded on Singapore exchange, but their income statement is in Thai Baht... That's why :)
- 313
4
votes
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How can you determine the correct significance of the Shiller P/E regression?
Overlapping observations leads to correlation of error terms
Let $r_{t \rightarrow t+k}$ be the log return from time $t$ to $t+k$. Imagine you're running a regression forecasting $k$ year returns ...
- 6,794
4
votes
Accepted
Neural Networks for Estimation of Unmarked Private Asset Returns from Market Data
Based on an my updated understanding of your problem you have a portfolio consisting of $N$ illiquid assets. Valuations are not real time and usually lagged, by say, upto 3 months (or slightly longer),...
- 8,207
4
votes
Accepted
Global stock market valuations
Yardeni has lots of great valuation information. Below is a link to the forward P/E ratio by country, as requested. The update date is March 10, and the frequency is weekly, so this is probably as ...
- 815
4
votes
Conceptual problem with risk neutrality-What is a 'risk-neutral world', exactly?
I have masters degree in mathematics so the math isn't the problem; but, trying to get my head around financial math, I keep having problems with the concept of 'risk-neutrality'.
I suspect you might ...
- 141
3
votes
Valuation of a swap where both parties can cancel (not settle at market) with accrual method instead of present-value?
Any time that a contract is cancellable by either party, it will be cancelled. That's because it is always to one party's advantage to cancel rather than carry on. The exception is that the contract ...
- 15.2k
3
votes
Calculate Average Price, Cost, (Un)Realized P&L of a position based on executed trades
Using @mde answer's for the average price method and developing it for Fifo method:
...
- 451
3
votes
Value of a continuous cash flow until a random time
As long as your market is complete and $\tau$ is measurable w.r.t. the filtration generated by the market the continuous cash flow paid until $\tau$ is a hedgeable contingent claim and you have to ...
- 5,582
3
votes
Finding the True Option Value
Basically it boils down to this:
You either use a descriptive or a prescriptive (normative) model, i.e. you either think that the market is always right or you think that you alone know how to ...
- 27.2k
3
votes
Accepted
S&P P/E Ratio 2008 Spike Explanation
Bank earnings specifically, but yes.
http://www.macrotrends.net/1324/s-p-500-earnings-history
- 46
3
votes
Accepted
Why aren't option pricing models more frequently used to value risky cash flows?
There are papers out there applying this approach. Try looking up Leland, Leland&Toft (1994 and 1996) for modelling corporate liabilities, resulting in a series of interesting results. Also, it ...
- 91
3
votes
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Why does DCF discount at WACC and not risk-free rate?
A dollar to be received with certainty (for example, you have purchased a bill from the US government) at time $t$ will be valued at $e^{-rt}$.
If you are uncertain about whether you will receive the ...
- 5,718
3
votes
Rate of convergence between price and value
I performed spectral analysis on the stock market for disaggregated returns. If $\mu$ is the center of location and anything away from $\mu$ is an "error", then the stock market is in equilibrium ...
- 4,159
3
votes
Accepted
Quantlib derivative valuation from zero curve
If you already have the zero rates, you can construct the zero curve using the set of maturities (dates) and zero rates values, in addition to a day count convention in this way:
...
- 2,130
3
votes
Accepted
Why use par-value weighted average when valuing portfolio of bonds?
Sums the market value times the par value for each bond
Could you clarify that formula ? From what you wrote it seems to be just a way to dollarize the bond price (market value = 97%, par value = 200 ...
- 2,888
3
votes
Pricing under risk-neutral probabilities for weird derivatives?
@Gordon has already given the answer but here is a little more notes to it...
At time time $T_2$ the holder receives $X=(S_{T_1}-K)^+$. According to Risk Neutral Valuation the value at time $t$ $(t&...
- 1,597
3
votes
Accepted
Covered Interest Rate Parity with FX Spot-Adjustment
A simple trick is being used to come up with the right discount factors.
Since $D_T=\frac{1}{1+r_1}\frac{1}{1+r_2}\frac{1}{1+r_3}\cdots\frac{1}{1+r_T}$
and $D_S=\frac{1}{1+r_1}\frac{1}{1+r_2}$
we ...
- 9,212
3
votes
How to calculate performance of a private equity investment?
I am not an expert on GIPS, with its many pages of rules, but I do remember that under GIPS Private Equity results are to be given in terms of IRR (Internal Rate of Return). In most other cases (stock/...
- 9,212
3
votes
Tech companies valuation
If we talk about tech stocks in general, a majority of their value is tied up in more distant cash flows / terminal value in a standard DCF analysis. So if interest rates go up, the more distant cash ...
- 31
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 ...
- 171
3
votes
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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,...
- 5,513
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