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Looking at oil prices now(https://www.cmegroup.com/trading/energy/crude-oil/light-sweet-crude.html)
May Futures - $20
June Futures - $26
Spot - $20
With price convergence theory, may futures matches closely with spot. This makes sense.
However, May futures are rolling over soon(Apr 21). Once rolled over,... |
I understand why compiled languages such as C/C++ are important for low-latency trading infrastructure.
But I am curious why even researchers at the high-frequency trading firms also require a strong mastery of C/C++? Isn't Python (with the numerous strong packages such as scikit, pandas, etc) a better language for d... |
Why is C/C++ used by researchers to develop and test algorithmic trading strategies? |
I was recently asked:
*Given a random time series of 1s and -1s. Eg of a sample = [1, 1, 1, -1, -1, 1, -1,..]. The autocorrelation of this series is Z. What can you say about the probability of a 1(or -1) followed by 1 (or -1 respectively)?*
We can further assume that probability of +1 and -1 is 0.5 respectively.... |
(a) today, say I did a fx swap trade: long PHP/USD spot and short 1m PHP/USD forward. Then if 1m PHP interest rate goes up, I should make money (meaning i locked in paying a lower 1m PHP interest rate today).
(b) But on the other hand, I long PHP/USD spot and short 1m PHP/USD forward, meaning I borrow USD today and ... |
are there some tests which are usually performed in order to ensure that a calibration procedure is sound? That is, say you have a model depending on N parameters and one tries to fit them in order to match M market observables.
Are there common "market practice" tests which are usually done in order to ensure the sta... |
How would you model and price the risk of Covid-19 pandemic? These large cost low probability events with very little history seems to pose a particular challenge when quantitatively modeling and pricing the risk. What types of models have you used? What are the inputs to your models? |
How would you model and price the risk of Covid-19 pandemic? These large cost low probability events with very little history seems to pose a particular challenge when quantitatively modeling and pricing the risk. What types of models have you used? What are the inputs to your models?
Taleb is calling this a Whit... |
In an interest rate swap, when pricing at inception (e.g. making sure the NPV is zero at inception), is the fixed rate set first and then the floating rate calculated (or vice-versa, e.g. floating rate set first and then the fixed rate calculated)?
I'm assuming it can be calculated both ways, so I could go to a brok... |
When pricing interest rate swaps at inception, should the fixed rate or floating rate be priced first? |
To wit, why doesn't Delta Neutrality necessarily break even or lose money? I assume the semi-strong form of the EMH, defined in Zvi Bodie, Alex Kane, Alan J. Marcus. [*Investments* (2018 11 edn)](https://www.amazon.ca/Investments-Zvi-Bodie/dp/1259277178/ref=dp_ob_title_bk). p 338.
> The **semistr... |
How can Delta Neutrality profit you? |
To wit, doesn't hedging necessarily break even or lose money? I assume the semi-strong form of the EMH, defined in Zvi Bodie, Alex Kane, Alan J. Marcus. [*Investments* (2018 11 edn)](https://www.amazon.ca/Investments-Zvi-Bodie/dp/1259277178/ref=dp_ob_title_bk). p 338.
> The **semistrong-form** hy... |
How can you possibly profit from hedging, in view of Algorithmic Trading? |
I am trying to understand how to size and compare brokers' costs. As per my understanding, they charge customers on either or both spreads and commissions. The latters are straightforward: for each contract a percentage/a fixed amount has to be paid to the broker (two times per round trade, i.e. when entering and when ... |
How brokers' spread costs work? |
I am Computer engineer and I know programming in python, go-lang, C++, I am interested in trading, I know how to make system to get data, send orders, back-test, fault-tolerance system, etc
I have understanding of how the market works, its jargon, terms, methodology, basically I know how to trade.
What basically I ... |
Exchange-traded options appeared after the Chicago Board Options Exchange (CBOE) opened in 1973. But what about stock warrants? From what I have surmised from reading, exchange-traded warrants did not exist in the early 20th century. When and where did the first exchange-traded warrants appear?
I tried to look up th... |
When did the first exchange-traded warrants appear? |
Callable bull/bear contracts, which are barrier options, trade on the Hong Kong exchange (HKEX). See: https://www.hkex.com.hk/Products/Securities/Callable-Bull-Bear-Contracts?sc_lang=en |
For a relatively small subset of stock symbols I have been able to build a model that is able to 20-100 times per day consistently predict whether a stock is going up within the next 2 minutes, being correct 75% of the time.
I have worked both academically and professionally with data science, and dare say I am using ... |
How to monetize ability to predict small stock movements smaller than spread? |
I will work through a detailed example. I hope it helps.
Suppose for simplicity that you are trying to hedge the interest rate risk of one simplistic debt instrument. Suppose that the obligor owes you USD 10 million and promises to pay fixed 10% annual coupon, and to repay the principal in equal installments in year... |
I see that the minimum tick for the micro emini futures contract (MES) is .25 (according to the page on CME's website [here](https://www.cmegroup.com/trading/equity-index/us-index/micro-e-mini-futures.html)). I see a lot of changes in the price that are equal to half of that, though.
- What are the requirements tha... |
two separate minimum tick sizes for micro emini futures? |
To understand the issue here, pick a simple example.
In their original article, Fisher Black and Myron Scholes derived a famous partial differential equation from which they obtained their celebrated formula. Recall the argument they made. In the continuous trading limit, delta hedging can eliminate all the risk fac... |
Exchange-traded options appeared after the Chicago Board Options Exchange (CBOE) opened in 1973. But what about exchange-traded stock warrants? From what I have surmised from reading, exchange-traded warrants did not exist in the early 20th century. When and where did the first exchange-traded warrants appear?
I tri... |
Theorem (Mutual fund theorem in the case that there is one risk-less asset and at least one risky asset). Suppose that all preced- ing assumptions in this subsubsection are valid. Consider the constant portfolios $w^r$ and $w^{\mu}$
what is the nature of the constant portfolios $w^r$ and $w^{\mu}$? Are they relative p... |
Theorem (Mutual fund theorem in the case that there is one risk-less asset and at least one risky asset). Suppose that all preced- ing assumptions in this subsubsection are valid. Consider the constant portfolios $w^r$ and $w^{\mu}$
what is the nature of the constant portfolios $w^r$ and $w^{\mu}$? Are they relative p... |
On top of the many other good answers here, you also have to be careful about distinguishing between the "payoff" and the risk exposure.
Let's assume there are no jumps; that zero-cost instant frictionless trading were possible; and none of the classic shortcomings of the Black-Scholes assumptions apply.
Pick ... |
Partly because it's hard to get a hold of, the Arslan et. al. paper is starting to assume mythical proportions.
As said by Dimitri Vulis, the general idea of the paper is set out in (one or two of) Peter Carr's papers.
For the benefit of the OP and others I will try to summarize the most salient points of the pap... |
Partly because it's hard to get a hold of, the Arslan et. al. paper is starting to assume mythical proportions.
As said by Dimitri Vulis, the general idea of the paper is set out in (one or two of) Peter Carr's papers.
For the benefit of the OP and others I will try to summarize the most salient points of the pap... |
I just wanted to confirm whether the implied volatility (IV) quoted in the market (e.g. if I wanted to get a "price" quote from a trader) for an American style option on a dividend paying stock is the IV from a binomial pricing model for a discrete dividend payer? Or is it generally standard industry practice to quote ... |
What is the standard option pricing model used to extract the implied volatility for an american option on a dividend paying stock? |
(copying my comment on the original question, since it seems to have solved the problem)
Have you verified whether these are trade prices, or midquotes? If the spread increases from 1-tick to 2 ticks by (e.g. ) the ask increasing, then the midquote would appear to move up by 1/2 tick. Trades can (as far as I know) onl... |
I have a very basic question about filtrations and Radon-Nikodym derivatives. I am reading the Andersen-Piterbarg, more in particular Eq. (1.12). They define the process $\zeta(t) = E^P_t[\frac{dQ}{dP}]$, where $Q\sim P$ are equivalent measures. Now, their claim is that obviously $\zeta(0) = 1$. Now, I see that the who... |
Apologies if this has been asked before - but I wanted to clarify what the market standard was for discounting options i.e. what is the "risk free" rate actually used by quants and traders? I haven't really been able to find a concrete answer to this unfortunately.
I've read for instance in text books that the risk... |
What is the standard risk free rate used in discounting options? |
When would open interest equal trading volume
Only very rarely, and purely by chance
and when would it differ?
almost all of the time
See Alex C's great answer for details.
|
Suppose I want to perform an event study on corporate CDS spreads using the market model. All my CDS are US dollar-denominated, whereas the market index is euro-denominated. Is this strategy acceptable, or should I use an index to match the currency of securities, such as an equally-weighted portfolio?
Thanks. |
I have the following trades:
Sequence Side Quantity @ Price
1. Buy 12 @ 100
2. Buy 17 @ 99
3. Buy 3 @ 103
4. Sell 9 @ 101
5. Sell 4 @ 105
with sold quantity = 9+4 = 13
and current position size = (12+17+3)-13 =... |
What is the standard risk free rate used to discount options? |
I have the following trades:
Sequence Side Quantity @ Price
1. Buy 12 @ 100
2. Buy 17 @ 99
3. Buy 3 @ 103
4. Sell 9 @ 101
5. Sell 4 @ 105
with sold quantity = 9+4 = 13
and current position size = (12+17+3)-13 =... |
I have the following trades:
Sequence Side Quantity @ Price
1. Buy 12 @ 100
2. Buy 17 @ 99
3. Buy 3 @ 103
4. Sell 9 @ 101
5. Sell 4 @ 105
with sold quantity = 9+4 = 13
and current position size = (12+17+3)-13 =... |
Is there a way to anticipate order flow on a security that is traded on one exchange and has a single order book? Any statistical or other models ? |
Looking at Markit spreads, when both USD and EUR spreads are published, then usually (not always) either they are exactly the same, or differ only by 1-2%. I think this means that many contributors just submit the same numbers for USD and EUR spreads.
However for a few names the spreads differ a lot, most notably EU... |
This is my first question and I would very much appreciate any help.
For a project I am trying to compare different hedging techniques for hedging a long portfolio of bonds.
I have a history of yields for US govt bonds, from which I have computed the first three PCA factors in Python and Excel, please see below.
... |
I have the following trades:
Sequence Side Quantity @ Price
1. Buy 12 @ 100
2. Buy 17 @ 99
3. Buy 3 @ 103
4. Sell 9 @ 101
5. Sell 4 @ 105
with sold quantity = 9+4 = 13
and current position size = (12+17+3)-13 =... |
There are several points to answer this question:
**Most usual quote is the closing price**
That was my original question. Initially I thought that there is a standard. In his comments, @markleeds pointed me out that there is no such standard. This explains why I couldn't find any satisfactory information in Goog... |
My question is if I have a spot position of a commodity e.g Naturals Gas I want to hedge, how would I determine, which futures e.g. quarterly, yearly I should pick. Should I just take the one it is the most correlated with? And when I calculate the correlation should I take it over the whole time period i.e 10 years? A... |
I'm looking for historical data of S&P500 options. I have access to Wharton Research Data Services (WRDS), however, my university does not provide access to Option Metrics. Is there another way how I can obtain this kind of data from another data provider on WRDS? PHLX only provides data until 1997, but it would be con... |
I am trying to recreate the [SKEW][1] in Python. I need to calculate the errors terms that are adjustment terms for the differences between the `atm strike` and the `forward`.
[![enter image description here][2]][2]
My formula's
error_term_1 = -1 * (1 + np.log(forward / atm_strike) - (forward / atm_strik... |
As a matter of fact, we know that the yield on zero coupon government bonds of all maturity change over time and that those changes aren't perfectly predictable. As this is a source of risk, it should be compensated and, therefore, the theoretical ideal would be to introduce a stochastic short rate process in your opti... |
I know this may sound stupid. But I had this idea and wanted to try it out for a college project.
Has this been done before?
If and what's wrong with this idea? |
Is it possible to build a computer model to simulate a market to prove whether efficient theory is true or not? |
Let's begin from the start.
At its core, market efficiency is a statement about the compensation for risk embedded in asset prices. So, you can think of this issue as involving 3 quantities: (1) the price that you observe, (2) the price that you should observe and (3) the distance between them. The fundamental probl... |
I have encountered a statement that in summary reads like this:
Varswaps became popular after the LTCM meltdown due to high levels of **implied volatility** the market was seeing at the time. Hedge funds took advantage of this by selling the realized variance (i.e. being short varswaps which are a proxies for the qu... |
1# When would the three risk factors market, size and value be priced in the FF Three factor model when performing cs-regression? How do you know that they are priced?
2# How would it be possible to interpret the risk premiums of the Thre Factor model. Could somebody give an example? |
I am trying to recreate the CBOE's [SKEW][1] Index in Python. I need to calculate the errors terms that are adjustment terms for the differences between the `atm strike` and the `forward`.
[![enter image description here][2]][2]
My formula's
error_term_1 = -1 * (1 + np.log(forward / atm_strike) - (forwar... |
I'm learning some time series analysis and forecasting techniques, I've tried to predict stock prices for Netflix but I'm very confused.
At first I've tried Auto ARIMA which gave me a straight line, obviously it's a bad fit, then I tried a linear regression between X(t) and it's lagged version, I've plotted a lag p... |
Theorem (Mutual fund theorem in the case that there is one risk-less asset and at least one risky asset). Suppose that all preced- ing assumptions in this subsubsection are valid. Consider the constant portfolios $w^r$ and $w^{\mu}$
what is the nature of the constant portfolios $w^r$ and $w^{\mu}$? Are they relative p... |
Theorem (Mutual fund theorem in the case that there is one risk-less asset and at least one risky asset). Suppose that all preced- ing assumptions in this subsubsection are valid. Consider the constant portfolios $w^r$ and $w^{\mu}$
what is the nature of the constant portfolios $w^r$ and $w^{\mu}$? Are they relative p... |
I obviously don't want to generalise here, but my initial impression of stat arb and relative value arb is that these strategies earn stable pennies during bull markets when volatility is depressed but perform very poorly when vol spikes (e.g. in down markets). This impression stems from the LTCM blow up, the quant qua... |
Are statistical arb and relative value arb strategies implicitly short volatility? |
Theorem (Mutual fund theorem in the case that there is one risk-less asset and at least one risky asset). Suppose that all preced- ing assumptions in this subsection are valid. Consider the constant portfolios $w^r$ and $w^{\mu}$
what is the nature of the constant portfolios $w^r$ and $w^{\mu}$? Are they relative port... |
Theorem (Mutual fund theorem in the case that there is one risk-less asset and at least one risky asset). Suppose that all preced- ing assumptions in this subsection are valid. Consider the constant portfolios $w^r$ and $w^{\mu}$ defined by $\sum_{I=1}^{N} w^{\mu ,I}(0,w^{\mu ,1}, \dots, w^{\mu ,N})^T$ is the relative ... |
Theorem (Mutual fund theorem in the case that there is one risk-less asset and at least one risky asset). Suppose that all preced- ing assumptions in this subsection are valid. Consider the constant portfolios $w^r$ and $w^{\mu}$ defined by $\sum_{I=1}^{N} w^{\mu ,I}(0,w^{\mu ,1}, \dots, w^{\mu ,N})^T$ is the relative ... |
Yes. It's possible to simulate markets. It's called Agent based model and you can read more about it on wikipedia:
<https://en.wikipedia.org/wiki/Agent-based_model>
Basically you assign simple rules to the agents (in our case market participants) and **simulate** to try to re-create and predict how the markets be... |
Does most financial institutions measure risks in terms of https://en.wikipedia.org/wiki/Coherent_risk_measure? Or are they using other/newer theoretical tools? |
In terms of calibrating a pricing model to observed prices for American options on a dividend paying stock, is there a standard way of doing this in practice?
My initial thought was to use CRR binomial trees/Leisen and Reimer 1995 methods, then applying numerical techniques to back solve for the implied volatility ... |
Implied vol and model calibration for an american option on a dividend paying stock - is there a market standard pricing model? |
I would like to replicate the folowwing blommberg pricer in quantlib using quantlib xl.
is-it possible?
Thanks[![swaption matrix][1]][1]
[![bmg screen][2]][2]
[1]: https://i.stack.imgur.com/EWz9o.png
[2]: https://i.stack.imgur.com/YdLYh.jpg |
how to use quantlib excel for valuation of european swaption with vol surface to calibrate? |
Is there a way to anticipate order flow on a security. For simplicity's sake i'm referring to a security that is traded on one exchange and has a single order book, by anticipating order flow i mean is there any way to evaluate the size and direction (buy / sell) of the next order placed? |
Is there a way to anticipate order flow on a security. For simplicity's sake i'm referring to a security that is traded on one exchange and has a single order book, by anticipating order flow i mean is there any way to evaluate the size and direction (buy / sell) of the next order placed in real time? |
I have the following trades:
Sequence Side Quantity @ Price
1. Buy 12 @ 100
2. Buy 17 @ 99
3. Buy 3 @ 103
4. Sell 9 @ 101
5. Sell 4 @ 105
with sold quantity = 9+4 = 13
and current position size = (12+17+3)-13 =... |
I am trying to fit a custom GARCH model by QMLE in R. I have written out the log likelihood function and am now working on optimizing it. However, choosing an optimization algorithm has proven to be difficult. I have tried the optimizers in the `optim` package, but they seem unstable for this purpose. I have also tried... |
Suggestions for choosing an optimization algorithm for fitting custom GARCH models by QMLE in R? |
I'm working on an asset and liabilities model for life insurance as a school project, one of the inputs of the model is a bond portfolio, for the sake of optimization of computation speed (the model also uses an economic scenario generator to evaluate the portfolio in multiple scenarios) i thought that aggregating the ... |
I would like to replicate the folowwing Blommberg pricer in quantlib using Quantlib xl. Is it possible?
Thanks
[![swaption matrix][1]][1]
[![bmg screen][2]][2]
[1]: https://i.stack.imgur.com/EWz9o.png
[2]: https://i.stack.imgur.com/YdLYh.jpg |
How to use quantlib Excel for valuation of european swaption with vol surface to calibrate? |
I would like to replicate the following Bloomberg pricer in quantlib using Quantlib xl. Is it possible?
Thanks
[![swaption matrix][1]][1]
[![bmg screen][2]][2]
[1]: https://i.stack.imgur.com/EWz9o.png
[2]: https://i.stack.imgur.com/YdLYh.jpg |
I need to to estimate the parameters of vasicek model to predict the zero curve.
My database has 4k daily observations of zero rate for 37 maturities. My question is do I have to estimate the model parameters for each maturity ? |
$W_t$ is a brownian motion and $X_t= \sqrt{t}Z$, where: $Z\sim N(0,1)$.
How to show that for a bounded continuous $f$ process, $$U_t = \int_0^t (f(W_s))ds$$ and $$V_t = \int_0^t (f(X_s))ds$$ have the same expectation but not the same variance in general?
|
I am setting up a backtesting using a walkforward optimization model to find out if a trading strategy performs well or not and I would like to clarify some doubts:
First of all which is the correct width of the window (trainig + tesing period) to consider (is there any standard or emphirical method to find it out) ... |
I have a binary classification model that predicts BUY (1) and SELL (-1) with an out of sample F1 score of 71% (precision is 65% and recall is 80%). The model's output is a probability of a BUY label occurring, which is then used in a bet sizing formula to bet cash (similar to the kelly criterion). The model was also t... |
I am setting up a backtesting using a walkforward optimization model to find out if a trading strategy performs well or not and I would like to clarify some doubts:
First of all what is the correct width of the window (training + testing period) to consider (is there any standard or empirical method to find it out) ... |
Assuming you are given an array of values representing a stock's historical price, is there a way to tell if this array of prices has been reversed? |
Is there a way to tell if a time series price data is reversed? |
Assuming you are given an array of values representing a stock's historical price, without timestamps, is there a way to tell if this array of prices has been reversed? |
Theoretically, this is a more difficult problem than it looks like at first glance. Unfortunately, existing literature taking into account a proper dividend consideration is rare (at least from a practical viewpoint). There are several options:
1) Use what is called "De-Americanization": In this case, based on your ... |
Theoretically, this is a more difficult problem than it looks like at first glance. Unfortunately, existing literature taking into account a proper dividend consideration is rare (at least from a practical viewpoint). There are several options:
1) Use what is called "De-Americanization": In this case, based on your ... |
Theoretically, this is a more difficult problem than it looks like at first glance. Unfortunately, existing literature taking into account a proper dividend consideration is rare (at least from a practical viewpoint). There are several options:
1) Use what is called "De-Americanization": In this case, based on your ... |
Today was a historical moment with prices for Crude Oil futures contract failing below 0.
My question is, if you are a contract holder - can you just refuse the delivery, given that the contracts are usually delivered in at least 2 weeks time? Why do you have to sell at a negative price?
Thanks
|
I am a beginner and have a basic question.
I was looking at OIL - US Crude in IG today (20th of April), they have a spot and a future contract.
Today was the last trading day for May future contract. The future contract was trading at less than one dollar and the spot contract was trading at 20 USD, how does it... |
I am a beginner and have a basic question.
I was looking at OIL - US Crude in IG today (20th of April), they have a spot and a future contract.
Today was the last trading day for May future contract. The future contract was trading at less than one dollar and the spot contract was trading at 20 USD, how does it... |
Can I ask what type of backetest you are using? Is it an event-driven backtest or a simple for-loop backtest. Depending on whether you wrote your own or are using a library for it, try and analyse a sample of trades individually.
If you are only predicting a buy or sell, then you aren't really left with any wriggle... |
I just wanted to clarify a few things around implied volatility which I've read in the Hull and Natenberg books, which I find quite confusing.
Both books refer to implied volatility in the context of a European option on a non-dividend paying underlying, and they calibrate the BS 1973 model to observed option prices... |
Is implied volatility model specific in the context of options on stocks and indices? |
When pricing a callable IRS (say only one call date) with a diffusion model (e.g. HW 1F) with a Montecarlo resolution, one can get the call probability on the call date versus maturing the date (which is the percentage of paths where the embedded swaption end up with a value > 0)
What would be an analytical way of i... |
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