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I want to start a blog/newsletter and maintain a track record of
trades I recommend. I have a never-expiring demo account for this
purpose.
How do I keep this track record "honest"? Three months from now,
someone can claim I backdated everything, made up trades, etc. Is
there a well-known way to keep trade... |
Can futures market open interest predict commodity, treasury, and equity returns? |
I came across this [article][1] and became curious. Can the futures market's open interest really predict market action?
[1]: http://historysquared.com/2011/01/31/open-interest-in-futures-markets-predicts-stock-bond-commodity-and-currency-prices-says-study/ |
Can the futures market's open interest predict commodity, treasury, and equity returns? |
If what you're worried about is being accused of **backdating**, then you could try **timestamping** your articles by some trusted third party. This way you can certify that a document/article was created before a certain date and wasn't modified further on (so in this situation that you've come up with some conclusion... |
If what you're worried about is being accused of **backdating**, then you could try **timestamping** your articles by some trusted third party. This way you can certify that a document/article was created before a certain date and wasn't modified further on (so in this situation that you've come up with some conclusion... |
Im putting together an Ultra-High Frequency desk and need to answer the following questions for ordering some rack servers to process about 2 GB of data per second. If anyone has worked at a HFT desk before can you help me out? Also what kind of software do big HFT shops run? Linux, Unix, Windows?!? HELP!!!!
How man... |
Q: How many Processors are required, and what clock speed?
**A: as many as you can get**
How much Memory required?
**A: as must as you can get**
How much internal storage would you need?
**A: as much and as fast as you can get, think 500GB SSD**
Do you require any external storage?
**A: yes, think in terabytes**... |
Your question is very broad and cannot be answered by community as it requires a thorough analysis of your business needs. This isn't something that can be done while having a coffee break. Of course one may answer to your questions: "as many & as much & at least & the fastest" but your costs will skyrocket as there is... |
The B-S formula is not such interesting for you as its derivation. This formula is based on the B-S model.
(i) Suppose that the model nicely describe real-life - remember that price movements are assumed to be random and unpredictable so it does not contradict with EMH.
If the model is true, the derivation of th... |
Seems like the vast majority of all the Hedging literature is dedicated to the speculative side of it. I am searching for quality papers that deal with the link between financial and physical markets and how non-financial companies can manage and control the risks of price movements of commodities and currencies in the... |
Commodity hedging in non-financial companies - any literature available? |
The consensus seems to be is using jump diffusion process (affine), and then using copula's and/or correlated brownian motions to handle the correlation structure.
Here's a link to a recent paper that discusses these models in great detail, and includes application of these models for modeling quanto cds:
http:/... |
I am studying Arbitrage Pricing Theory (APT) and I have a question about calculating factor exposures.
Assume:
\begin{equation}
r = \beta_1r_1 + \beta_2r_2 + ... + \beta_kr_k + r_e
\end{equation}
Where:
beta is the exposure of the asset to a factor
r is the return attributable to a factor
I believe... |
> I believe that beta will be the covariance of the factor with the underlying asset. Is this correct?
Close, it's the covariance divided by the variance of the factor.
\begin{equation}
\beta_{f,a} = \frac{\sigma_{f,a}}{\sigma_f}
\end{equation}
> Also how is the return attributable to a specific factor calcu... |
I am valuing a binary FX option (european) with a defined strike and term (2Y). I'm using a closed form solution based on Black-Scholes framework. How can I derive the appropriate volatility to use from the market data I have?
**Market Data (all quoted in implied volatility):**
ATM
25D Risk Reversa... |
How to derive appropriate volatility for a binary option (with strike/term) from market data? |
Binary options can be replicated (in theory) by trading long and short call options with very close strikes. Take the Black-Scholes formula and differentiate it over the strike. You will need to know the slope of the implied volatility skew around the strike of the binary option. This you can do by fitting a parametri... |
Let's say I am hedging an exotic instrument $E$ with $N$ liquid instruments $L_i$, each of which has an associated hedging ratio $R_i$ and a bid-ask spread $\delta_i$ (per dollar of notional). What would you recommend as a cost function to balance the completeness of the hedge and minimize the hedging cost? |
I'm looking for a heuristic way to calculate the probabilities of being in the money at expiry for non-defined risk options combinations (listed options).
I use delta as a proxy for this probability of success for single options, which makes an implicit distributional assumption.
For spreads I use width of the ... |
I'm looking for a heuristic way to calculate the probabilities of being in the money at expiry for non-defined risk options combinations (listed options).
I use delta as a proxy for this probability of success for single options, which makes an implicit distributional assumption.
For spreads I use width of the sp... |
I don't have much to add, but wanted to address the "price of risk" question.
APT is kind of "economics"-free and tries to price assets without the utility maximization required in CAPM/ICAPM. Ross's APT observes that groups of assets move together (e.g., tech stocks) and that is the risk you're bearing because the ... |
I don't have much to add, but wanted to address the "price of risk" question.
APT is kind of "economics"-free and tries to price assets without the utility maximization required in CAPM/ICAPM. Ross's APT observes that groups of assets move together (e.g., tech stocks) and that is the risk you're bearing because the ... |
Do you know any papers which consider pairs trading (aka statistical arbitrage) on foreign exchange? I couldn't find any. I already asked this question on several forums and got no reply. Thus I guess this trading strategy is inapplicable due to properties of currency markets or any other fundamental reasons. However t... |
What are the applications of binomial trees? |
What are binomial trees and how are they used? |
I'm looking for a heuristic way to calculate the probabilities of being in the money at expiry for non-defined risk options combinations (listed options).
I use delta as a proxy for this probability of success for single options, which makes an implicit distributional assumption.
For spreads I use width of the sp... |
I'm currently working on my Masters project related to accelerating greeks computations for CVA on mixed interest rate portfolios.
I would like to know about the status of technology for CVA & its greeks computations in the industry. (Mainly related to speed of computation)
Example situation:<br>
1) Portfolio of 1... |
I'm currently working on my Masters project related to accelerating Greeks computations for CVA on mixed interest rate portfolios. I would like to know about the status of technology for CVA and its Greeks computations in the industry (mainly related to speed of computation).
Example situation:
1. Portfolio of 1... |
> I am implementing a method in Java to
> calculate the variance, covariance,
> and value at risk for a portfolio,
> which should be flexible for use with
> any number of assets in a portfolio. I
> am struggling with how to calculate
> the covariance of the assets as I can
> only find formulae to do so for two o... |
And which new models do I use to overcome these? |
What are the main limitations of Black Scholes? |
I'm probably missing something, but why not apply Black-Scholes to
each leg and add the results to get the price distribution for the
spread? You'll get a non-closed-form result, but can evaluate it to
arbitrary precision using numerical methods.
To add probability distributions:
Suppose Z = X + Y wh... |
What's the right way to take a series of returns and convert it into a continuous index? Let's say I want to show the performance of a strategy starting from 1, and adding on returns so that I get an equity curve, should I be using `cumsum(1 + returns)` or `cumprod(1 + returns)`? |
Convert returns into an index? |
This is a bit DSP-related: so if you turn your non-stationary time series into a stationary process, you'll probably see that it is not periodic.. This is an issue for Fourier-based techniques because they are not local in frequency. Now, besides wavelets (some types are causal btw), which other causal techniques can y... |
DSP: stationary non-periodic signal: what's the best causal technique? |
In reference to the original Black Scholes model, what approach is best to test the model in a rigorous way? Is there a standard approach that can accomplish this in a reasonable amount of time?
Details I require:
* number of trials,
* which software to use, formulas etc.
* any other information that I s... |
How to conduct Monte Carlo simulations to test validity of Black Scholes for a specific option? |
In reference to the original Black Scholes model, what approach is best to test the model in a rigorous way? Is there a standard approach that can accomplish this in a reasonable amount of time?
Details I require:
* number of trials,
* which software to use, formulas etc.
* any other information that I s... |
On the software end, if you want something quick/dirty I would personally go with Matlab/R/python however if you want something a bit more rigorous (e.g. payoff classes, "better" SDEs) something OO like C++ would really be the route to take.
The basic is fairly simple here's a quick sample of what it should look li... |
I was thinking about writing my own backtesting and I realize I have to make some assumptions. So I was hoping I could post what I am planning on doing and hopefully some of you can give some ideas on how to make it better (I'm sure there is a lot that can be improved).
First of all, my strategy involves holding sto... |
Nowadays structured products (or packages) with complex payoff diagrams are omnipresent.
Do you know of any software, add-ons, apps, code whatever, that enables you to enter a payoff diagram or a cashflow profile which gives you the basic building blocks like the underlying, zero coupon bonds and esp. all the option... |
I am substituting reasonable values in the below fomula (like r=0.12, T=20, nColumn=16, sigma=0.004)...why is probability coming out to be greater than 1? Any help? Thanks!
del_T=T./nColumn; % where n is the number of columns in binomial lattice
u=exp(sigma.*sqrt(del_T));
d=1./u;
p=(exp(r.*del_T)-... |
Risk neutral probability in binomial lattice option coming greater than 1...what's wrong? |
I have just started applying Binomial-Lattice, however I am yet to fully understand few things. My questions are:
1. What is the concept of working backward (left side) from the values in terminal (farthest) nodes at the right side. Why do we need to do backward induction? I started my first node with some value `S`... |
I have just started applying Binomial-Lattice, however I am yet to fully understand few things. My questions are:
1. What is the concept of working backward (left side) from the values in terminal (farthest) nodes at the right side. Why do we need to do backward induction? I started my first node with some value `S`... |
Suppose I have two time series X and Y of stock prices. How do I measure the "similarity" of X and Y? (I'm being deliberately vague as I don't have a particular application, and I'm curious about different approaches in general. But I guess you can imagine that there's some stock X that I don't want to trade directly, ... |
I think you can look at books like "[The Evaluation and Optimization of Trading Strategies][1]" for some more insight about developing testing strategies.
Also, don't forget that __you__, the strategy designer, knows the future and could potentially develop biased strategies. It's hard to unlearn something once you... |
Suppose I have two time series $X$ and $Y$ of stock prices. How do I measure the "similarity" of $X$ and $Y$?
(I'm being deliberately vague as I don't have a particular application, and I'm curious about different approaches in general. But I guess you can imagine that there's some stock **x** that I don't want to t... |
I am trying to get the historical price data on selected American and European style options at EURX. I am not familiar with their system. Does any one one whether they have something like yahoo finance does where I can just download market data through R? Or at least, excel files with daily prices.
Thank you |
I do not know such a software - but we can think about the code. There are tow points which you have to define properly:
1. which assets (correspondently, payoffs) are you allowed to replicate the complicated option?
2. as barrycarter has already asked - what should be the form of the input?
Further procedure sh... |
It seems like everyone here is MC but you can use PDE methods as well.
Anyway there is two things that you can usually check, the Price and ... the Hedge ( or replication price).
Let's look at the first case :
-if you have closed-form formulas (as is usually the case in the BS "fantas(ma)tic-wishfull thinkin... |
Nowadays structured products (or packages) with complex payoff diagrams are omnipresent.
Do you know of any software, add-ons, apps, code whatever, that enables you to enter a payoff diagram or a cashflow profile which gives you the basic building blocks like the underlying, zero coupon bonds and esp. all the option... |
I am trying to get the historical price data on selected American and European style options at EUREX. I am not familiar with their system. Does any one know whether they have something like yahoo finance where I can just download market data through R? Or at least, excel files with daily prices.
Thank you |
Given 2 portfolios with identical correlation matrices, which one will have a better risk/reward ratio ? |
I have one portfolio with high beta stocks, and one with low beta stocks. Is it better to have higher expected return with high volatility, or medium expected return with medium volatility? (All from a asset allocation, efficient frontier, risk/reward prospective.) |
Given two portfolios with identical correlation matrices, which one will have a better risk/reward ratio? |
Suppose I have two time series $X$ and $Y$ of stock prices. How do I measure the "similarity" of $X$ and $Y$?
(I'm being deliberately vague as I don't have a particular application, and I'm curious about different approaches in general. But I guess you can imagine that there's some stock **x** that I don't want to t... |
I haven't tried myself but from what I have seen your best bet would be the managed accounts from Interactive Brokers.
There is a nice post about it here: http://leighdrogen.com/the-hedge-fund-structure-is-dead/
* A quick and dirty option would be to use an API to pass the orders and loop through all the accounts... |
One way investors analyze stocks is on a technical basis. Looking at Bollinger Banks (20 day moving average +- 2 standard deviations) is one of the most popular technical tools. Some stocks trade between their Bollinger bands and rarely break through the bands.
Research points to price changes in stocks as a rando... |
Seeing a pattern in a chart is the finance equivalence of a Rorschach test---the discerned pattern says more about the person than the image. And really, if you want to trade that way, you may as well use astrology.
Your real question seems to be:
> How can I accept or reject the hypothesis that Bollinger bands a... |
As we all know, the best known sample estimator of volatility is the standard deviation of the log returns.
It is indeed a very good estimator (unbiased, ...) ***when the sample is large.***
But I don't like it for small sample as it tends to overweight outliers in log returns.
Do you know if any other statist... |
As we all know, the best known sample estimator of volatility is the standard deviation of the log returns.
It is indeed a very good estimator (unbiased, ...) **when the sample is large.**
But I don't like it for small sample as it tends to overweigh outliers in log returns.
Do you know if any other statistica... |
I do not know such a software - but we can think about the code. There are tow points which you have to define properly:
1. which assets (correspondently, payoffs) are you allowed to replicate the complicated option?
2. as barrycarter has already asked - what should be the form of the input?
Further procedure sh... |
I do not know such a software - but we can think about the code. There are tow points which you have to define properly:
1. which assets (correspondently, payoffs) are you allowed to replicate the complicated option?
2. as barrycarter has already asked - what should be the form of the input?
Further procedure sh... |
It seems like everyone here is MC but you can use PDE methods as well.
Anyway there is two things that you can usually check, the Price and ... the Hedge ( or replication price).
Let's look at the first case :
-if you have closed-form formulas (as is usually the case in the BS "fantas(ma)tic-wishfull thinkin... |
It seems like everyone here is MC but you can use PDE methods as well.
Anyway there is two things that you can usually check, the Price and ... the Hedge (or replication price).
Let's look at the first case:
- If you have closed-form formulas (as is usually the case in the BS "fantas(ma)tic-wishfull thinking... |
This question has been answered many times over already, though hopefully this will provide a bit more insight. If I understand your question correctly, you're basically asking if you can use BSM as a trading indicator.
So let's think about what it really means to be trading an option. Every single variable (i.e. pr... |
One commonly used sample estimator of volatility is the standard deviation of the log returns.
It is indeed a very good estimator (unbiased, ...) **when the sample is large.**
But I don't like it for small sample as it tends to overweight outliers in log returns.
Do you know if any other statistical dispersion... |
Can the concept of entropy be applied to financial time series? |
As a good starting point read this recent paper by Jing Chen:<br>
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1734526
For a special use of the entropy concept for forecasting the '87-crash read this paper:<br>
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=959547<br>
(Although I tried to contact the au... |
Have a good quant joke? Share it here. The principle "should be of interest to quants" trumps.
I would be particularly keen to learn jokes which involve some nontrivial finance/mathematics. I am looking for jokes which make you laugh and think at the same time.
This is a community wiki question: One quant joke or... |
Here are some suggestions.
Search Amazon (or your favorite bookseller) for books concerning "C++ quantitative finance." I found several titles that look promising.
I went to [SourceForge][1] (searching on "Trading Systems") and saw several promising systems that might give you a leg up in
drawdown, MAE, etc.
... |
As a good starting point read this recent paper by Jing Chen:<br>
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1734526
For a special use of the entropy concept for forecasting the '87-crash read this paper:<br>
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=959547<br>
(Although I tried to contact the au... |
I have just started applying Binomial-Lattice, however I am yet to fully understand few things. My questions are:
1. What is the concept of working backward (left side) from the values in terminal (farthest) nodes at the right side. Why do we need to do backward induction? I started my first node with some value `S`... |
I am asked to map financial products into XML. It can be in any format. I know there is an open specification FPML. Is that worth to adopt FPML rather than my own standards? Also, how widely FPML is in the industry? |
I am asked to map financial products into XML. It can be in any format. I know there is an open specification FPML. Is that worth to adopt FPML rather than my own standards? Also, how common FPML is in the industry? |
When returns are auto-correlated, calculating a Sharpe ratio := mean(x)/sqrt(var(x)), ( where x are the returns ) is complicated, but basically solved (see, e.g. Lo (2005) ). Without the correction, the Sharpe ratio is too large, b/c auto-correlation reduces the variance of the returns.
However calculating the Cala... |
I recently become interested in finance. Many books discuss options as simple examples of derivatives. I also read some "popular books". I read in "The Poker Face of Wall Street" that almost no farmers actually use commodity exchanges (p91), while in many places the opposite is claimed (for example, "Traders, Guns, ... |
Did farmers really buy options on the CBOE? |
What are the limitations of brownian motion in its applications to finance? |
What are the limitations of brownian motion in finance? |
So where to begin? Continuity is a big thing as it fails to take into account jumps, the Gaussian assumption is another big one. However, looking deeper into it stationarity is a huge problem as it applies to financial time series.
However, it does an OK job at simulation stuff in the long-run. |
what is the role of skewness in portfolio optimization? |
So, any European type option we can characterize with a payoff function $P(S)$ where $S$ is a price of an underlying at the maturity.
Let us consider some model $M$ such that within this model $V(S,\tau,P)$ is a price of an option with a payoff $P$ at time to maturity $\tau$ and an asset's price $S$ at time $\tau$.... |
I have a MSc degree in the area of Financial Mathematics, but I am doing research now in other field of stochastics. Could you please tell me about the most important problems of (stochastic) financial mathematics nowadays?
Are they only looking for new processes for they price of an asset (and solutions of corresp... |
Mr. Soros in his books talked about principles which are not used by today's financial mathematics - namely reflectivity of all actions on the market. Simply it can be given by following: expectations of traders are based on the news and historical prices. They trade based on their expectations and hence influence on p... |
I am doing some research involving black-scholes model and got stuck with dividend-paying stocks when evaluating options. What is the real-world approach on handling the situations when an underlying pays dividend?
Thank you |
Consider U1(μ,Σ) and U2(μ,Σ), where
U1(μ,∙) = U2(μ,∙), U1(∙,Σ) = U2(∙,Σ)
__ arg infμ∈U1(μ,∙), Σ∈U1(∙,Σ) wTμ – αwTΣw ≡ arg infμ∈U2(μ,∙),
Σ∈U2(∙,Σ) wTμ – αwTΣw
__ Solutions for inner problems are the same
(μ, Σ) from U1 are positively related (Σ ↑ as μ ↑ → positively skewed)
(μ, Σ) from U2 are neg... |
So, any European type option we can characterize with a payoff function $P(S)$ where $S$ is a price of an underlying at the maturity.
Let us consider some model $M$ such that within this model $V(S,\tau,P)$ is a price of an option with a payoff $P$ at time to maturity $\tau$ and an asset's price $S$ at time $\tau$.... |
Consider $U_1(\mu,\Sigma)$ and $U_2(\mu,\Sigma)$,
where
$U_1(\mu,∙) = U_2(\mu,∙)$,
U1(∙,Σ) = U2(∙,Σ)
__ arg infμ∈U1(μ,∙), Σ∈U1(∙,Σ) wTμ – αwTΣw ≡ arg infμ∈U2(μ,∙),
Σ∈U2(∙,Σ) wTμ – αwTΣw
__ Solutions for inner problems are the same
(μ, Σ) from U1 are positively related (Σ ↑ as μ ↑ →... |
Consider $U_1(\mu,\Sigma)$ and $U_2(\mu,\Sigma)$, where
$U_1(\mu,\cdot) = U_2(\mu,\cdot)$ and $U1(\cdot,\Sigma) = U2(\cdot,\Sigma)$.
__ arg infμ∈U1(μ,∙), Σ∈U1(∙,Σ) wTμ – αwTΣw ≡ arg infμ∈U2(μ,∙),
Σ∈U2(∙,Σ) wTμ – αwTΣw
__ Solutions for inner problems are the same
(μ, Σ) from U1 are positively ... |
Consider $U_1(\mu,\Sigma)$ and $U_2(\mu,\Sigma)$, where $U_1(\mu, \cdot) = U_2(\mu, \cdot)$, $U_1(\cdot, \Sigma) = U_2(\cdot, \Sigma)$ such that $arg~inf~\mu \in U_1(\mu, \cdot)$, $\Sigma \in U_1(\cdot, \Sigma) w T \mu – \alpha w T \Sigma w \equiv arg~inf~\mu \in U_2(\mu, \cdot)$, $\Sigma \in U_2(\cdot, \Sigma) w T \mu... |
Consider $U_1(\mu,\Sigma)$ and $U_2(\mu,\Sigma)$, where $U_1(\mu, \cdot) = U_2(\mu, \cdot)$, $U_1(\cdot, \Sigma) = U_2(\cdot, \Sigma)$ such that $arg~inf~\mu \in U_1(\mu, \cdot)$, $\Sigma \in U_1(\cdot, \Sigma) w T \mu – \alpha w T \Sigma w \equiv arg~inf~\mu \in U_2(\mu, \cdot)$, $\Sigma \in U_2(\cdot, \Sigma) w T \mu... |
Consider $U_1(\mu,\Sigma)$ and $U_2(\mu,\Sigma)$, where $U_1(\mu, \cdot) = U_2(\mu, \cdot)$, $U_1(\cdot, \Sigma) = U_2(\cdot, \Sigma)$ such that
$\begin{align*}
&arg~inf_{\mu \in U_1(\mu, \cdot), \Sigma \in U_1(\cdot, \Sigma)} w T \mu – \alpha w T \Sigma w \\
&\equiv arg~inf_{\mu \in U_2(\mu, \cdot), \Sigma \in U_... |
There's a lot of people here talking about how GAs are empirical, don't have theoretical foundations, are black-boxes, and the like. I beg to differ! There's a whole branch of economics devoted to looking at markets in terms of evolutionary metaphors: Evolutionary Economics!
I highly recommend the Dopfer book, ... |
What does a CVA desk do, and how are its activities different from other trading desks? Can you work as a quant for a CVA desk and consider your role "front office"? |
does anybody know a site where I can download historical data on stocks including companies that have gone bankrupt such as lehman brothers?
it appears that bankrupt companies no longer appear in the finance sites that I know... |
Google and Yahoo finance have a survivorship bias -- they only include firms that are still around. I know of no free source that provides the data you seek. I get my data from Compustat and CRSP via the Wharton Resource Data Service, but these (or Bloomberg or Reuters) are likely too expensive for an individual.
Ha... |
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