user7056
  • Member for 9 years, 5 months
  • Last seen more than a month ago
  • Switzerland
What distribution to assume for interest rates?
6 votes

You could try using the Gaussian Affine Term Structure Models (GATSM), with the right boundary conditions to stop rates being negative (in the style of their Black implementation). See, for example, ...

View answer
Concentration risk in credit portfolio
5 votes

Via Liquidity Horizons $LH$ (which have to be taken into consideration anyway when modelling for $Basel_3$) as function of the specific concentrations $c$'s. Increasing the effective maturity of the ...

View answer
Recommendations for books to understand the math in quantitative finance papers?
4 votes

Paul Wilmott on Quantitative Finance.

View answer
Stress Testing Methods
3 votes

I would suggest you to add spreads to the implied hazard rates, spreads that you regress on the macroeconomic factors. Then you stress by calculating the spreads corresponding to the stressed factors.

View answer
Heston - How important are the initial guess in calibration and if it is very important, what would be a good way to get initial guess?
Accepted answer
3 votes

To check your results, you might try "The Heston Model: A Practical Approach with Matlab Code" by Nimalin Moodley, http://math.nyu.edu/~atm262/fall06/compmethods/a1/nimalinmoodley.pdf , in particular ...

View answer
Equivalency of FX forwards and FX basis swaps for risk-management purposes
Accepted answer
3 votes

The two are not equivalent, because of the cross-currency basis spread (CCBS), which became a risk factor in itself sice 2007, and does depend on term. This practically leeds to a difference in your ...

View answer
CVA number used by Finance Team
2 votes

The CVA charge in Basel iii reporting increases the capital required for OTC derivatives trading. Apart from CVA, there are DVA and FVA that are important. The adjustments might be unitary reffered to ...

View answer
Modelling with negative interest rates
2 votes

The NPV of a zero coupon bond Z, in the currency in which it has been emitted: Z(t)= Notional*[Z(0)* exp (yiled (Z;t)*t)] and yield(Z;t)=Z(0)*t+ epsilon Where ----- t is the time since the ...

View answer
Implied Probability of Default from Bond Prices
2 votes

This does not sum to 1 because you have forgotten to add the 6th scenario, the NonDefault (ND). If Ps is the probability of survival and Pd the probability of default, the ND has the probability Ps^...

View answer
Are minimum-risk and minimum-variance portfolios equivalent?
2 votes

Answering "No" to the title question, I'll mention that variance is a rather poor measure of risk, even if convinient and nicely behaving. Variance is not even a risk measure, with the standard ...

View answer
How can I estimate the parameters of an option value model of retirement?
2 votes

Have you tried a swaption having a marked to market of the notional N at t_1=retirement age? From t_0=contract signing untill t_1, you receive the rate r_payments and pay the risk-free/investment ...

View answer
Excel to Java for Interactive brokers
1 votes

You rewrite your XL functions as unique, massive function, which receives all the input your Excel needs and outputs the valu(es) you are interested in. Transform this unique function into an ...

View answer
which product supports Basel III LCR (liquidity coverage ratio) reporting?
Accepted answer
1 votes

OneSumX (FRS Global - now officially Wolters Kluwer Financial Services). Due to the impact on market risk (explicit creation of new contracts from available liquidity lines, firstly affected by ...

View answer
How come the existence of ARCH effect is not a violation of Random Walk Hypothesis 3?
1 votes

I would confirm it. For time series forecasting, one can use 3 versions of random walk: RW model 1 (basic geometric random walk): stock returns in different periods are statistically independent (...

View answer
Strategy of Renaissance Technologies Medallion fund: Holy Grail or next Madoff?
1 votes

The Wiki pages seemed to have been upgraded :) http://en.wikipedia.org/wiki/Renaissance_Technologies Investment strategy Renaissance uses computer-based models to predict price changes in easily-...

View answer
Why for one year (and not two or three) government bonds (there is a spike for Switzerland & Denmark)?
1 votes

http://uk.reuters.com/article/2012/11/27/efsf-bond-idUKL5E8MR6I220121127 Nov 27: The order book on the European Financial Stability Facility one-year syndicated issue is over EUR 5bn according to a ...

View answer
Separated software and physical cash flows modelling and pricing to be used with negative interest rates?
Accepted answer
1 votes

No. The shadow pricing of goods theory can explain the presently observed negative interest rates bonds. A shadow interest rate shows when the expected return is greater than interest rate (as firms ...

View answer
How do I calculate weighted mean with negative weights?
1 votes

The weights are, by definition, positive, and add to do normalization to the total amount the wights are calculated for. The title of the question does not make sense. However, what it happend in ...

View answer
Do all risky assets have negative expected return over long enough time horizons?
0 votes

The risk measures the deviation from the zero expected return (no free lunch). If the asset produces a profit of +p or a loss of -p, it is equally risky.

View answer
what is General IB2 Restriction in Basel II credit risk model
Accepted answer
0 votes

Islamic Banking (IB) has a different view on financial risk: The required minimum share holders equity must be lower than for counterparties in conventional banks because credit risk is also ...

View answer
Who is the issuer and the counter part of this instrument?
0 votes

In a futures contract, the exchange clearing house itselfs acts as/is the counterparty to both parties in the contract (and this is why the credit risk is heavily reduced). Futures are not issued (...

View answer
How popular is the IRR as a tool for capital budgeting, nowadays?
0 votes

In my opinion the internal rate of return should be used in the discounting factor which enters the NPV calculation, weighted by some credit risk factor, or having added a credit risk spread. Unless ...

View answer
Non-negative matrix factorization for factor analysis of stocks
0 votes

I am not sure if I have correctly understood your problem. But, as you want to detect the market sentiment (bear/bull), you imply that there is extra information in the market that is not included in ...

View answer
Measuring liquidity
0 votes

Any spread that adds to the risk free rate is made by credit spread (the counterparty will not return the security) and liquidity spread (the need of the market for that security). In a Repurchase ...

View answer
how to make a distribution model tolerable of trend?
0 votes

you could calculate and subtract the trend. dx=h(m-x)*dt+s*dz x_(t) - x_(t - 1) = m (1 - exp(- h Dt)) + (exp(- h Dt) - 1) x_(t - 1) + e_t error e_t normally distributed with (s_e)^2 = [1 - exp(- 2 ...

View answer
Recommendation for a book on CVA/Credit Risk and PD/LGD/EAD modeling?
0 votes

Mind the "side-effects" of CVA: DVA and FVA. Antonio Castagna has some clear introduction to them ("Funding, Liquidity, Credit and Counterparty Risk: Links and Implications" - for DVA, and "Yes, FVA ...

View answer
Block Bootstrapping Relative Returns
0 votes

When you do bootstrapping, the actual problem is that you have too few events to really get an actual distribution. There are X methods to get the original set enriched, reinserting the events based ...

View answer
Government bonds with negative yield
0 votes

Cash is not unlimited. And, if everybody invested in cash while cash getting unlimited, in the end one is in a world filled with papers, which lose their value. Secondly, but now last, banks, ...

View answer
Encyclopedia of Statistical Tests
0 votes

There is "A Review of Backtesting and Backtesting Procedures" by Sean D. Campbell. It is related to VaR backtesting, but the article discusses the general properties of unconditional coverage and ...

View answer
Correlation: Test for linear dependence
0 votes

If you have time seria you could postulate a linear equation for them: x(t)=a*t+b giving a=x(t+1)-x(t) There are lots of methods to deal with the hypothesis that a is zero or not, including low ...

View answer