AKdemy
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Why and when we should use the log variable?
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16 votes

Based on your paper and variables, I assume you ask about the use in econometric models. There are some rules of thumb for taking logs (do not take them for granted). See for example Wooldrigde: ...

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Difference between 5Y breakeven inflation and 5Y5Y inflation forward?
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9 votes

I downvoted because I think the FED is very detailed in their documentation. The definition of a forward is a very basic financial question that a bit of google search can answer and not a quant ...

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Is SOFR to replace LIBOR or Fed Fund Rate or both
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8 votes

The market is using SOFR discounting for all sorts of quotations already (not FF). For example, swaption vol is quoted with SOFR discounting, CME and LCH moved to SOFR PAI and discounting on Oct. 16 ...

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Inflation effect on FX rates
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6 votes

Edit: adding some references (main body is untouched) Kenneth Rogoff and Richard Meese received an incredulous reaction to their now-famous paper showing that random-walk (RW) forecasts outperform ...

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Differences between main classes of interest pricing derivatives models
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6 votes

I am not sure if you can classify it like that. Mind you, I never wrote a book. I'll write what I know below and you can decide if the classification makes sense or not. 1 ) STIR: as the term ...

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Why are there no papers about stock prediction with machine learning in leading financial journals?
6 votes

Was debating if I should even comment on this but then thought tonight I'm gonna have myself a real good time. JPMorgan Machine Learning in Financial Markets Conference, Paris 2019 offers a ...

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Future Value: the functions in Excel, Matlab and Numpy Financial don't work when the number of periods is large
5 votes

This is not a bug, just how computers work. Would have been better to ask in a non finance forum though. It is called (Integer) Overflow. If you are into reading humorous chats, you can have a look ...

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Transition to SOFR Swaps and single curve pricing
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5 votes

I think the question was about dual curve stripping. As much as I know, the market is using SOFR discounting for all sorts of quotations now. For example, swaption vol is quoted with SOFR discounting, ...

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Data source for FX options
4 votes

If you think of New York and London as cutoff, that doesn't exist as a market quote (white instead of amber in OVDV as it is interpolated). BGN and BGNL stands for New York and London daily close ...

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Relationship between VIX and Vega
4 votes

VIX almost always only spikes when SPX goes down as @Jan Stuller also mentions in a comment. Insofar the question is a bit counterfactual. I frequently use twin axis in the charts that follow. The ...

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Fat tailed can be estimated through a t-distributions?
4 votes

B is the correct choice. I honestly would wish multiple choice would not even exist. It is the worst way of testing knowledge in my opinion. Without knowing the details of what was taught, I would say ...

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If the volatility of pounds/euros = .2 do we know anything about the volatility of euros/pounds?
4 votes

Some additional comments to @Jeremy909. That "problem" is one reason why logs are so useful. See Reason 2: The log difference is independent of the direction of change. However, I think it ...

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Calculation of annual yield for NDFs
4 votes

I have never seen this particular formula either but I have seen something similar being used frequently. Hedge costs are computed as $$(Fwd\ Pts/Spot)/100 $$ and annualized (usually with exact days ...

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Multi-Period Contribution
4 votes

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 ...

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Barriers on structured notes
4 votes

I may risk some negative reactions with that post. However, I prefer to write this rather than not doing it. After all, it should be fine to disagree and express concern. From what I can tell, no one ...

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How is forex market Quote-Driven?
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4 votes

If you use a retail platform, they do not make markets. For example, CMC markets gets the FX rate from liquidity providers like Deutsche Bank, JP Morgan, Barclays, Goldman, UBS, Citibank and HSBC. You ...

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Different types of swaps and generalized pricing structure - correlation swap, variance swap, volatility swap, gamma swap, etc
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4 votes

For Variance Swaps (and Vol swaps with some caveats), the Black Scholes model is the main tool used for pricing. It is just less obvious. Using your example, options are not priced with S-K or K-S ...

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Difference b/w Spot Premium and Forward Premium for FX Options
4 votes

I am assuming you do NOT refer to Investopedia: Forward Premium which does not change the way you value an option. I assume you mean the following: Wikipedia: Garman-Kohlagen The call formula (similar ...

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The greeks, vanillas and digitals
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3 votes

There is no difference in real world settings. Market practitioners usually always price a digital as a tight call spread to capture skewness. For example, setting strikes at $$𝐾± = 𝐾 ±1/2𝑑𝐾,$$ in ...

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CURRENCY ADJUSTED RETURNS: How to adjust stock returns in foreign currency (e.g., EUR) to local currency (USD)?
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3 votes

If the link is insufficient, does this work?

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FX option quotation in interbank market
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3 votes

You are confusing listed options with OTC (over the counter options). Conventional option chains only exist for listed options. Equity and commodity are liquid listed option markets. FX and IRS are ...

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How to account for the credit spread ( e.g. LIBOR + 2%) when using the Multicurve Methodology in valuing a Swap
3 votes

1 ) Spread is for fwd only 4 ) Discounting is SOFR in any case (if using dual curve). See here for some details. That said, FF OIS still exists, but even this curve is discounted by SOFR and applies &...

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How do you hedge your inventory when doing arbitrage?
3 votes

Too long for a comment - so I add this here as an answer. Not sure what delta hedging arbitrage is but I think you define delta as a difference in price? While cross listing is not uncommon, I think ...

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Probability of an Option maturing In-the-money vs. Volatility
3 votes

This is quite a brain teaser, at least it was for me. The way I thought about this initially was based on statistics. This lead me to believe that higher IVOL should always decrease the probability of ...

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Effect of Implied volatility on option delta
3 votes

Not sure if you meant only short puts with "when option is ITM increase in volatility will decrease the delta, whereas for OTM option increase in volatility will increase the delta". Either ...

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Finite Difference Method in Greeks (Options)
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3 votes

Agree with @Brian B. With BS, you cannot have the issue in (1). Tree, grid, Monte Carlo could all result in errors though. (2) is a likely reason. I just tried in Julia for ATM, 0 div and rates plus 0....

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Value of Call Option as Volatility goes to Infinity
3 votes

Copy pasting parts of an answer I did here as it illustrates the limits of call and put option premia. $N(d2)$ is the probability that a call option with an exercise price of $K$ is exercised in a ...

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Which is the "correct" 5Y5Y Inflation Expectation on Bloomberg, and what are the differences?
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3 votes

I think the help desk would have been able to help. According to the DES page, FWISUS55 Index is simply 2*USSWIT10 Curncy - USSWIT5 Curncy. These are zero coupon inflation swap quotes. This is a ...

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Proof of the fact that roots lie outside the unit circle guarantee stationarity of the time series
3 votes

Probably better to ask in a stats forum. However, you are right; if all roots are outside the unit circle (equivalently, all inverse roots are inside the unit circle), the series is covariance ...

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Statistical significance in the context of financial data?
3 votes

Welcome to the world of time series data. Without knowing exactly what you did, your results are almost certainly spurious. There are only two cases when OLS is applicable: cointegration Classic ...

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