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I am a first year Management & Finance undergrad preparing for my second year Finance courses, given that term 3 and exams have pretty much been cancelled for all British first years.
During that preparation, I am a little bit lost in connecting the dots in option pricing. For option pricing models (binomial, trinom... |
Three things happen:
1- the riskless point on the origin can sink and stay negative.
2- this should steepen the SML, ie marginal return per unit risk increases (assuming no change in the efficient frontier). Ultimately MaxSharpe will roll down the efficient frontier towards the MinVol point. Ultimately, this jui... |
Three things happen:
1- the riskless point on the origin can sink and stay negative.
2- this should steepen the SML, ie marginal return per unit risk increases (assuming no change in the efficient frontier). Ultimately MaxSharpe will roll down the efficient frontier towards the MinVol point. Ultimately, this jui... |
I have not understood which "zerorati" I must use for the bootstrap of the PD from the curve of the CDS spreads. Can you help me please? I consulted O'Kane (2008) and Brigo and Mercurio (2006), but I'm not sure of the choice.
https://it.mathworks.com/help/finance/bootstrapping-a-default-probability-curve.html |
Suppose that you are riskless asset with return $r_{ft}$ and a risky asset with return $r_t$ and conditional volatility $\sigma_t(r_t) := \sqrt{V_t(r_t)}$. We build a portfolio using weights $(w_1, w_2) \in \mathbb{R}$, or as you wrote it $w_t := w_{1t}$, $w_{2t} := 1 - w_t$. This portfolio will have a time $t$ return ... |
Suppose that you are riskless asset with return $r_{ft}$ and a risky asset with return $r_t$ and conditional volatility $\sigma_t(r_t) := \sqrt{V_t(r_t)}$. We build a portfolio using weights $(w_1, w_2) \in \mathbb{R}$, or as you wrote it $w_t := w_{1t}$, $w_{2t} := 1 - w_t$. This portfolio will have a time $t$ return ... |
[![Question][1]][1]
[1]: https://i.stack.imgur.com/IqQMG.jpg
We need to find dZ(t). I know I have to use Ito's formula. But I am confused because in the Ito's formula we have f(y,t) is a twice differentiable function with two variables
But here Z(t) = 1/(2+x(t)), which just has one variable?
So, I am not sure... |
It looks like $Z(t)$ is dependent on $t$ through $X_t$ and not directly on $t$, loosely speaking. Assume that $Z_t = f(X_t)$ and use Ito's formula with just one variable.
$$dZ_t = \frac{df}{dX} dX_t + \frac{1}{2} \frac{d^2f}{dX^2} d[X_t,X_t] $$
Can you proceed and finish it? |
Title pretty much says all.
I read the titular book, and found it lacking. I think it is nothing more than the notes that Schmidt took while learning the subject. Is there a list of follow up books for a scientist who want to get into quantitative finance? |
What is a good follow up book to Anatoly Schmidt's "Quantitative Finance for Physicists: An Introduction"? |
Can I use the residuals of the ARMA model to build a GARCH model(with Zero mean)?
If so, does this mean that this GARCH model(with Zero mean) has no effect on ARMA's estimates. For example, if I want to use ARMA models to predict returns, then GARCH (with Zero mean) will not help, unless both models estimate at the sa... |
Note that just before Equation (28.9), Hull writes $-$ my emphasis:
> _The market price of risk of_ [asset] _$\theta$ measures the **trade-offs between risk and return** that are made for securities dependent on $\theta$._
Additionally, some lines below $-$ my emphasis:
> _Chapter 5 distinguished between inves... |
which is the day-count convention in order to compute the floating leg of an asset swap?
I don't know if it is act/360, act/365, 30/360 or 30/365 |
Which is the day-count convention in order to compute the floating leg of an asset swap? I don't know if it is: Act/360, Act/365, 30/360 or 30/365. |
EURUSD is quoted at 1.0879/84.
Lets say O/N forward points are quoted at +0.032/+0.332.
Lets say based on these quotes I want to derive my implied funding cost (USD interest rate) if I wanted to borrow USD via an FX swap (sell EURUSD spot, buy it forward).
I want to sell EUR spot so I would lift the quoted bid (1.08... |
I downloaded the bid-ask spread from Bloomberg, but did not check how they calculate them.
Is it only the ask minus bid price or is it weighted in a way?
I appreciate your help!
|
EURUSD is quoted at 1.0879/84.
Lets say O/N forward points are quoted at +0.032/+0.332.
Lets say based on these quotes I want to derive my implied funding cost (USD interest rate) if I wanted to borrow USD via an FX swap (sell EURUSD spot, buy it forward).
I want to sell EUR spot so I would lift the quoted bid (1.08... |
It has been my understanding that CDS and CDS indices are traded in the OTC market. Surely, this would mean that if an investor decides to go long a CDS contract, the spread that the investor will be paying will not be public on the market i.e. it will be known only to the investor and the trader who did the transactio... |
In function of the quarantine I started to dig a little deeper into the "Max Pain" principle and how market makers who write the options have to hedge the risk.
What I understood so far: Options are written by the market makers which in turn have to cover their naked option writing with the underlying value. They do... |
When Fitting Implied Vol in, implied vol=ax²+bx+c, why is better to use moneyness than delta as independent variable? |
Below is a problem that I am working on. I believe that my incomplete solution is correct as far as it goes. I would like to know if my solution is incorrect. I plan to solve the system of two equations by using a computer program such as SciLab. What I am wondering is, does this system of equations have a unique solut... |
Black-Scholes and solving for both $r$ and $\sigma$ ; Do I have a unique solution? |
SABR model is quite popular and given options on a certain forward, you can easily calibrate it. In Fixed Income, the extensions to several tenors typically involve LMM. Is there a popular way to so in the Equity world? |
Given the market turmoil of late I have become fixated with this idea of using options to be long volatility (realised and implied). However, I dont know where to start, what to read, who to follow etc to actually understand how this is done in practice.
For instance, what strategies do traders use to execute a long... |
Are there any books/articles on how to use options to be long volatility (implied or realized)? |
On the picture below prices of SP500 and Gold (rescaled) for last 90 years.
There are at least **3 types of distortions caused by inflation**:
- Slow upward trend.
- Sudden jumps caused by radical changes in policy, like changing gold standard in 1933-1934.
- Smaller jumps caused by fed rate changes.
I wo... |
How to deflate USD inflation? |
On the picture below prices of SP500 and Gold (rescaled) for last 90 years.
There are at least **3 types of distortions caused by inflation**:
- Slow upward trend.
- Sudden jumps caused by radical changes in policy, like changing gold standard in 1933-1934.
- Smaller jumps caused by fed rate changes.
I wo... |
I am extremely new to the field of high-frequency trading. I have been trying to read a ton of materials out there to understand the general workflow. I have very basic knowledge of different concepts like FIX, Direct Market Access, Order Management System, DataFeed engines etc.
However, I have not been able to bui... |
On the picture below prices of SP500 and Gold (rescaled) for last 90 years.
There are at least **3 types of distortions caused by inflation**:
- Slow upward trend.
- Sudden jumps caused by radical changes in policy, like changing gold standard in 1933-1934.
- Smaller jumps caused by fed rate changes.
I wo... |
On the picture below prices of SP500 and Gold (rescaled) for last 90 years.
There are at least **3 types of distortions caused by inflation**:
- Slow upward trend.
- Sudden jumps caused by radical changes in policy, like changing gold standard in 1933-1934.
- Smaller jumps caused by fed rate changes.
I wo... |
I am trying to price Compound Options using `QuantLib`. I've looked around but am unable to find sample code. I believe that the CompoundOption Class should be used?
https://rkapl123.github.io/QLAnnotatedSource/dc/dae/class_quant_lib_1_1_compound_option.html
How can I adjust the code below to price compound optio... |
I am trying to price Compound Options using `QuantLib`. I've looked around but am unable to find sample code. I believe that the CompoundOption Class should be used?
https://rkapl123.github.io/QLAnnotatedSource/dc/dae/class_quant_lib_1_1_compound_option.html
How can I adjust the code below (for Eur/Amer call opti... |
I am trying to price Compound Options using `QuantLib` on Python. I've looked around but am unable to find any sample code. I believe that the CompoundOption Class should be used?
https://rkapl123.github.io/QLAnnotatedSource/dc/dae/class_quant_lib_1_1_compound_option.html
If you know of any sample code or if you ... |
I am a beginner in Stochastic Calculus. I am having trouble understanding the meaning behind a specific notation which appears in the topic of Ito process which in differential notation can be written as
$dX(t)=\mu (t)dt+\sigma (t)dW(t)$
Now it is mentioned as a fact that if $X(0)$, $\mu (t)$ and $\sigma (t)$ ar... |
Hi just curious where can I find the proofs of Black litterman's first term and second term formula? I don't quite know how exactly they derive the entire formula using inverses of matrix.
[![enter image description here][1]][1]
Thanks!
[1]: https://i.stack.imgur.com/rSuo7.png |
I have calculated exponentially weighted variances (and volatilities) for a future and the underlying index.
This has been done by:
- Calculating daily returns for 1 year (262 days to follow RiskMetrics
methodology) from 1 Jan 2018 to 2 Jan 2019.
- Calculating daily variances from 2 Jan 2019 onwards (alway... |
Decay factor and volatility (2 assets): do you keep simple correlation to calculate vol? or exponentially weighted correlation? |
I am trying to read Karatzas/Shreve "Methods of Mathematical Finance". In ch. 1, Definition 5.5, a cumulative income process $\Gamma(t)=\Gamma^{\mathrm{fv}}(t)+\Gamma^\mathrm{lm}(t)$ (a semimartingale under the original measure $P$) is defined to be integrable if
$$ E_0 \int_0^T \frac{d \hat\Gamma_0^{\mathrm{fv}}(u)}{... |
You're not really using the same spot, are you?
$$ FX_{fwd} = FX_{spot} \frac{1+r}{1+r_f} = FX_{spot} + ForwardPoints$$
But you are using 1.0879 on one side of the equation and then 1.0884 on the other.
If you correct for that and for the fact that ibors are quoted in Act/360, you get 0.6586% which is very clo... |
When we are calculating deltas or vegas for different strikes should we use the underlying asset's volatility or should we use the implied volatility for the specific strikes at a fixed maturity?
Is there a book or blog where I can learn about the actual models used in option backtesting or trading platforms( in ... |
Hull (pp. 765, equation (33.2), OFaOD 9th ed) gives an explicit formula for the convexity and timing adjustment for a CMS swaplet (assuming a lognormal rate process). This is:
$$y_{adjusted} = y - \frac{1}{2}y^2 \sigma_y^2t \frac{G''(y)}{G'(y)}- \frac{y\tau F \rho \sigma_F \sigma_yt}{1+F \tau} \tag{1}$$
where
... |
Hull (pp. 765, equation (33.2), OFaOD 9th ed) gives an explicit formula for the convexity and timing adjustment for a CMS swaplet (assuming a lognormal rate process). This is:
$$y_{adjusted} = y - \frac{1}{2}y^2 \sigma_y^2t \frac{G''(y)}{G'(y)}- \frac{y\tau F \rho \sigma_F \sigma_yt}{1+F \tau} \tag{1}$$
where
... |
On the picture below prices of SP500 and Gold (rescaled) for last 90 years.
[![enter image description here][1]][1]
There are at least **3 types of distortions caused by inflation**:
- Slow upward trend.
- Sudden jumps caused by radical changes in policy, like changing gold standard in 1933-1934.
- Smalle... |
I think what you are effectively looking at is
$$\
\begin{align}
\log(S_{AUDCAD})&=\log(S_{AUDUSD})\pm\log(S_{USDCAD})\\
\Rightarrow z&=x\pm y
\end{align}
$$
Thus,
$$
\sigma_z^2=\mathrm{E}\left(\left(x\pm y\right)^2\right)-
[\mathrm{E}(x\pm y)]^2
=\sigma_x^2+\sigma_y^2\pm 2\sigma_{xy}
$$
Hence,
$$
\... |
Where to get the "total" dividend (for a specific stock) from? |
If I made a GTC (good till cancelled) to a Stock Exchange how will it stay within the Orderbook of the Stock Exchange if not executed during the day? Will it be removed after the trading day is over and re added the next day? Or will it stay until it gets exectued or till I cancel it?
P.S.
If it is the first scenar... |
Consider the definition of *a derivative*:
> A derivative is a security with a price that is dependent upon or
> derived from one or more underlying assets.
Or as Wikipedia puts it:
> A derivative is a contract that derives its value from the performance of an underlying entity. This underlying entity can be ... |
I am looking at the process
$X_t = \int_0^tB_udu$
I know that this is a gaussian process with variance $t^3/3$. However, I would like to manually show the first statement directly.
For this, I would like to calculate the Laplace transform and show that it is the gaussian MGF. But the integral in the process ... |
I need help in getting a more intuitive understanding of this lemma 3.2.6 in Vol 1 of Shreve's Stochastic Calculus for Finance:
I understand the equation, and I can derive it ... |
I need help in getting a more intuitive understanding of this lemma 3.2.6 in Vol 1 of Shreve's Stochastic Calculus for Finance:
Here, in the context of multi-period binomial pri... |
In the first chapter of John Cochrane's Asset Pricing textbook, in order to calculate the price in discrete time, we solve the maximization problem of $Max\space E(\Sigma\beta^j U(c_{t+j}))$ when our $c_t = e_t - \xi p_t $ and $c_{t+j} = e_t + \xi D_t $ (e as endownment, c as consumption and $\xi$ as quantity of the as... |
What is the consumption constraint in writing the continuous version of Asset Pricing Model? |
In the first chapter of John Cochrane's Asset Pricing textbook, in order to calculate the price in discrete time, we solve the maximization problem of $Max\space E(\Sigma\beta^j U(c_{t+j}))$ when our $c_t = e_t - \xi p_t $ and $c_{t+j} = e_{t+j} + \xi D_{t+j} $ (e as endownment, c as consumption and $\xi$ as quantity o... |
In the first chapter of John Cochrane's Asset Pricing textbook, in order to calculate the price in discrete time, we solve the maximization problem of $Max\space E(\Sigma\beta^j U(c_{t+j}))$ when our $c_t = e_t - \xi p_t $ and $c_{t+j} = e_{t+j} + \xi D_{t+j} $ (e as endownment, c as consumption and $\xi$ as quantity o... |
Hull (pp. 765, equation (33.2), OFaOD 9th ed) gives an explicit formula for the convexity and timing adjustment for a CMS swaplet (assuming a lognormal rate process). This is:
$$y_{adjusted} = y - \frac{1}{2}y^2 \sigma_y^2t \frac{G''(y)}{G'(y)}- \frac{y\tau F \rho \sigma_F \sigma_yt}{1+F \tau} \tag{1}$$
where
... |
Hull (pp. 765, equation (33.2), OFaOD 9th ed) gives an explicit formula for the convexity and timing adjustment for a CMS swaplet (assuming a lognormal rate process). This is:
$$y_{adjusted} = y - \frac{1}{2}y^2 \sigma_y^2t \frac{G''(y)}{G'(y)}- \frac{y\tau F \rho \sigma_F \sigma_yt}{1+F \tau} \tag{1}$$
where
... |
Consider a European put option, whose price at time 0 is $\Pi_0$.
Set:
$$\mathcal{L}_0=\Pi_0 - P(0,t_M)\Pi_{t_M}$$
where 0 < $t_M$ and $P(0, t_M)$ is the discount factor from time $0$ to time $t_M$.
Is that correct to state that $\mathcal{L}_0$ represents the present value of a short position on the put option? Tha... |
Is this the present value of a short position on an option? |
Hull (pp. 765, equation (33.2), OFaOD 9th ed) gives an explicit formula for the convexity and timing adjustment for a CMS swaplet (assuming a lognormal rate process). This is:
$$y_{adjusted} = y - \frac{1}{2}y^2 \sigma_y^2t \frac{G''(y)}{G'(y)}- \frac{y\tau F \rho \sigma_F \sigma_yt}{1+F \tau} \tag{1}$$
where
... |
Consider a European put option, whose price at time $0$ is $\Pi_0$.
Set:
$$\mathcal{L}_0=\Pi_0 - P(0,t_M)\Pi_{t_M}$$
where 0 < $t_M$ and $P(0, t_M)$ is the discount factor from time $0$ to time $t_M$.
Is that correct to state that $\mathcal{L}_0$ represents the present value of a short position on the put option? T... |
Hull (pp. 765, equation (33.2), OFaOD 9th ed) gives an explicit formula for the convexity and timing adjustment for a CMS swaplet (assuming a lognormal rate process). This is:
$$y_{adjusted} = y - \frac{1}{2}y^2 \sigma_y^2t \frac{G''(y)}{G'(y)}- \frac{y\tau F \rho \sigma_F \sigma_yt}{1+F \tau} \tag{1}$$
where
... |
Hull (pp. 765, equation (33.2), OFaOD 9th ed) gives an explicit formula for the convexity and timing adjustment for a CMS swaplet (assuming a lognormal rate process). This is:
$$y_{adjusted} = y - \frac{1}{2}y^2 \sigma_y^2t \frac{G''(y)}{G'(y)}- \frac{y\tau F \rho \sigma_F \sigma_yt}{1+F \tau} \tag{1}$$
where
... |
When the price of an asset's future contract is at a certain level, does that mean investors as a whole expect the actual underlying asset to reach that price level in the future? |
Does a future contract's price show where investors think the underlying asset's price would be? |
Hull (pp. 765, equation (33.2), OFaOD 9th ed) gives an explicit formula for the convexity and timing adjustment for a CMS swaplet (assuming a lognormal rate process). This is:
$$y_{adjusted} = y - \frac{1}{2}y^2 \sigma_y^2t \frac{G''(y)}{G'(y)}- \frac{y\tau F \rho \sigma_F \sigma_yt}{1+F \tau} \tag{1}$$
where
... |
I am looking at the process
$X_t = \int_0^tB_udu$
I know that this is a gaussian process with variance $t^3/3$. However, I would like to manually show the first statement directly.
For this, I would like to calculate the Laplace transform and show that it is the gaussian MGF. But the integral in the process ... |
So, basically I'm looking at `{=SQRT(AVERAGE((R1:R100)^2))}`, or in words: the square root of the average of squared daily returns.
Is there a nice simple term/name for this? (By simple term, I mean a word that I could use with non-statisticians and the like.) |
Does this volatility-like measure have a name? |
I'm a beginner in Quantitative finance and I'd like to ask you for help about this exercise. I have to price a put option on a risky asset by working under stochastic interest rate, so I have to calibrate this process with simulate data, hence price this derivative.
Could someone help me with a practical exemple, in o... |
### Practical Approach to Convexity & Timing Adjustments
Omitting derivations because earlier answers have already covered them, let's address how we can explicitly calculate the adjustments. Hull (pp. 765, equation (33.2), OFaOD 9th ed) gives an explicit formula for the convexity and timing adjustment for a CMS swa... |
### Practical Approach to Convexity & Timing Adjustments
Omitting derivations because earlier answers have already covered them, let's address how we can explicitly calculate the adjustments. Hull (pp. 765, equation (33.2), OFaOD 9th ed) gives an explicit formula for the convexity and timing adjustment for a CMS swa... |
I am looking at the process
$$X_t = \int_0^tB_udu$$
I know that this is a gaussian process with variance $t^3/3$. However, I would like to manually show the first statement directly.
For this, I would like to calculate the Laplace transform and show that it is the gaussian MGF. But the integral in the proces... |
I am looking at the process
$$X_t = \int_0^tB_udu$$
I know that this is a gaussian process with variance $t^3/3$. However, I would like to manually show the first statement directly.
For this, I would like to calculate the Laplace transform and show that it is the gaussian MGF. But the integral in the proces... |
In the first chapter of John Cochrane's Asset Pricing textbook, in order to calculate the price in discrete time, we solve the maximization problem of $Max\space E(\Sigma\beta^j U(c_{t+j}))$ when our $c_t = e_t - \xi p_t $ and $c_{t+j} = e_{t+j} + \xi D_{t+j} $ (e as endownment, c as consumption and $\xi$ as quantity o... |
So I will start off by just stating my understanding of the two methods through some examples and lead that into my question. Hopefully it is correct but if not then perhaps the answer to my question will become clear still.
Example 1. Portfolio with a single option.
This is the example I always see worked out fo... |
How does delta-gamma VaR work in practice and when can it be preferable to Monte-Carlo VaR? |
I am testing out a systematic, cash-neutral, long/short strategy in a paper trading account with Interactive Brokers. Each day, an algorithm tells me what my target portfolio should look like in terms of relative position sizes. So, I multiply these target percent positions by 97% of my account value to yield target do... |
Suppose we have the following subordinated stochastic differential equations:
$dR(t)=\mu dt+\sigma (Y(t))dW_{1}(t)$
$dY(t)=f(Y)dt+g(Y)dW_{2}(t)$,
where $W_i$'s are standard Wiener process such that $dW_{i}(t)=\xi _{i}(t)dt$, $\xi _{i}(t)$ being the zero-mean Gaussian White noise with $
\left< \xi _i\left( t \... |
If you assume a zero drift for our asset return, this formula is indeed simply a measure for (daily?) volatility. |
There is zero libor gamma (for a usual CSA, ie ois discounting)
Ie if you are trading a libor swap, then you have gamma only in ois
And for a rule of thumb, approx dvo1 is years to maturity X notional / 10,000 , this approx worsens as maturity recedes and as rates go away from zero
why do i differentiate bet... |
### Practical Approach to Convexity & Timing Adjustments
Omitting derivations because earlier answers have already covered them, let's address how we can explicitly calculate the adjustments. Hull (pp. 765, equation (33.2), OFaOD 9th ed) gives an explicit formula for the convexity and timing adjustment for a CMS swa... |
### Practical Approach to Convexity & Timing Adjustments
Omitting derivations because earlier answers have already covered them, let's address how we can explicitly calculate the adjustments. Hull (pp. 765, equation (33.2), OFaOD 9th ed) gives an explicit formula for the convexity and timing adjustment for a CMS swa... |
### Practical Approach to Convexity & Timing Adjustments
Omitting derivations because earlier answers have already covered them, let's address how we can explicitly calculate the adjustments. Hull (pp. 765, equation (33.2), OFaOD 9th ed) gives an explicit formula for the convexity and timing adjustment for a CMS swa... |
I am testing out a systematic, cash-neutral, long/short strategy in a paper trading account with Interactive Brokers. Each day, an algorithm tells me what my target portfolio should look like in terms of relative position sizes. So, I multiply these target percent positions by 97% of my account value to yield target do... |
I am testing out a systematic, cash-neutral, long/short strategy in a paper trading account with Interactive Brokers. Each day, an algorithm tells me what my target portfolio should look like in terms of relative position sizes. So, I multiply these target percent positions by 97% of my account value to yield target do... |
Consider the definition of *a derivative*:
> A derivative is a security with a price that is dependent upon or
> derived from one or more underlying assets.
Or as Wikipedia puts it:
> A derivative is a contract that derives its value from the performance of an underlying entity. This underlying entity can be ... |
I'm trying to understand an example in Euan Sinclair's Option Trading book. On page 239 he gives a risk slide and pnl from a long 30 delta put short 30 delta call position. He says the implied volatility is 50%. Then he claims that the average daily move on the underlying is 2.50. If the implied vol is 50% then the dai... |
Suppose that you are short an option on asset $X_t$ following a pure diffusion. Suppose you are hedging your position using (Dupire) Local volatility model. Suppose that the option is concave with respect to the volatility, thus the second derivative with respect to the volatility is negative **(ie having negative vom... |
Do you know of any papers which consider pairs trading (or statistical arbitrage) on foreign exchange?
I couldn't find any. I asked this question on several forums and got no reply. Thus, I guess this trading strategy is inapplicable due to the properties of currency markets or other fundamental reasons. However, i... |
### Practical Approach to Convexity & Timing Adjustments
Omitting derivations because earlier answers have already covered them, let's address how we can explicitly calculate the adjustments. Hull (pp. 765, equation (33.2), OFaOD 9th ed) gives an explicit formula for the convexity and timing adjustment for a CMS swa... |
Let $B(t,T)$ denote the cost at time t of a risk-free 1 euro bond, at time T. Assume that the interest rate is a deterministic function. Show that the absence of arbitrage requires that:
$ B(0,1) B(1,2) = B(0,2)$
For instance, could you give a detailed explanation of what to do if $B(0,1)B(1,2) > B(0,2)$ ? |
### Practical Approach to Convexity & Timing Adjustments
Omitting derivations because earlier answers have already covered them, let's address how we can explicitly calculate the adjustments. Hull (pp. 765, equation (33.2), OFaOD 9th ed) gives an explicit formula for the convexity and timing adjustment for a CMS swa... |
### Practical Approach to Convexity & Timing Adjustments
Omitting derivations because earlier answers have already covered them, let's address how we can explicitly calculate the adjustments. Hull (pp. 765, equation (33.2), OFaOD 9th ed) gives an explicit formula for the convexity and timing adjustment for a CMS swa... |
### Practical Approach to Convexity & Timing Adjustments
Omitting derivations because earlier answers have already covered them, let's address how we can explicitly calculate the adjustments. Hull (pp. 765, equation (33.2), OFaOD 9th ed) gives an explicit formula for the convexity and timing adjustment for a CMS swa... |
I intend to perform a Monte Carlo simulation of asset returns in R. I am currently using the ```rmvnorm``` function in the ```mvtnorm``` R package to generate simulated returns based on multivariate normal distribution, taking into account asset return correlations. Based on historical asset prices, the asset returns (... |
I have 5 series for which I want to analyze volatility spillover (to and from the series) via VARX DCC GARCH for both dynamic and comtemporaneous effect. Moreover, I would like to analyze seasonal dummy effect and past return effect both in volatility and return. Here is my code-
```
varfit <- varxfit(data.merged.w... |
I read a very interesting paper by [Harris (2017)][1] where he points out some interesting link between market microstructure and the distribution of returns on equity. You can make a good case that the **pricing errors** made by market participants in equity markets follow a normal distribution. This would imply that ... |
Suppose that we are wrong about the relevant class of distributions for financial economics and econometrics. Now what? |
There were many attempts to switch from normal distribution to some other which can describe a market more accurate, i.e. distribution with fat-tails (e.g. Cauchy distribution or broader familly of so-called stable distributions).
These distribution allow you to model *Black swans*. However, as you pointed out, the... |
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