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 ...
- 16.6k
10
votes
Accepted
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, ...
- 7,999
9
votes
Accepted
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.
- 5,662
8
votes
Accepted
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 ...
- 5,959
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} - \...
- 11.4k
6
votes
Accepted
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 ...
- 507
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 ...
- 6,204
6
votes
Conceptual problem with risk neutrality-What is a 'risk-neutral world', exactly?
A little bit of history. This goes back to the early days when the Black Scholes formula for options was proposed but was still new and somewhat mysterious.
It was (and is) widely accepted in Finance ...
- 10.9k
6
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 ...
- 161
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
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 ...
- 16.6k
4
votes
Accepted
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
Accepted
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 ...
- 6,924
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),...
- 9,215
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 ...
- 845
4
votes
Why do we need an ex-dividend date?
I think you are really concerned about the record date. The ex-dividend date itself is set by the exchange. See for example Nasdaq.
The firm issuing the stock manages the declaration date, record ...
- 8,143
3
votes
Accepted
Why does depreciation not show up in my income statement?
Here the depreciation & amortization expenses are not just displayed as separate items. Rather, they are probably in this case included in Selling, general and administrative expenses, as well as ...
- 516
3
votes
Valuation of a swap where both parties can cancel (not settle at market) with accrual method instead of present-value?
I've been thinking about this too and for me, the answer is different from the accrual formula, but may not answer your question ^^'.
First little point, maybe your pricing formula is, for the libor ...
- 39
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 ...
- 5,632
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 ...
- 27.3k
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
Accepted
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 ...
- 5,891
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 ...
- 4,359
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:
...
- 2,200
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&...
- 1,627
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 ...
- 9,332
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