# All Questions

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### Is it too important that my residuals be normal? I am Using an ARMA/GARCH model

I am trying to fit an ARMA/GARCH model to a time series. I found that the best candidate is an ARMA(1,0) + GARCH(1,1) with gaussian white noise It has coefficients with p-values near cero and the ...
47 views

### Question about historical volatility ranking

I have seen this strategy example, which uses garch in a regime switching context: https://systematicinvestor.wordpress.com/2012/01/06/trading-using-garch-volatility-forecast/ The author classifies ...
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### Effective & Maturity Date Modified Following

I am constructing discount curve for tenor 1 month. First Instrument - PLN_1M_WIBOR has Effective Date on 2015-01-29 (spot). I was wondering what Maturity Date should be? 2015-02-27 or 2015-03-02? I ...
39 views

### Forward Curves and Par Yield Curves

I'm recently reading a research paper on the yield curve by Salomon brothers and in it it states that when the forward curve is above the par yield curve, it is seen as cheaper. If for example, the ...
190 views

### Does higher vega imply higher IV and vice versa

If an option A has higher vega than option B, does that also mean that A has a higher IV than B? I understand that by definition, a higher vega means that A's price is more sensitive to its IV than B. ...
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### If an option went down in value, how much is due to theta decay and how much due to fall in IV

Let us say that there was a stock trading at 100 and the 105 call was trading at 3 $. with 1 month to go Now stock went up to 104 after 15 days, and the call dropped to 2.80$, to the call buyer's ...
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### How to estimate CVA by valuing a CDS of the counterparty?

I'm trying to estimate CVA of one of my derivatives by valuing a credit default swap (CDS) of my counterparty. However, I don't know how to set up the CDS deal (notional amount, maturity, etc.). ...
26 views

### Pricing of a call option in one period binomial model

You are given a $5\%$ call option worth $\$2.66$. The strike price$k$is$\$41.00$. $S(0)=40$, $Sd=35$ (i.e the lower price of the stock at $t=1$) find $Su$ (i.e the high price of the stock at ...
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### Amortizing Bond QuantLibXL

I would ask if anybody knows how to do get the NPV of an amortizing bond with QuantLibXL in the most automated way. I found some solutions but are very close to a manual calc, say, pass the vector of ...
49 views

### Equity Chart - design and granularity

I am looking to build a web based Equity chart to display performance of FX trading strategies. I would like to hear opinions and advice on a few areas that I am unsure about. Granularity Equity ...
17 views

### Are CME security id's unique and constant over time?

For any given day, CME security IDs are unique - a number will always refer to a single product. Are they unique over time as well? That is, might a new security have a security id that used to be ...
208 views

### What is the yield on an infinitely lived ZCB?

I guess the price of a Zero-Coupon Bond with infinite maturity should go to zero, what about its yield? I am asking this because I was dealing with the yield curve and its asymptotic properties when ...
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### Will implied volatilities rise by same amount across time and across strikes in lieu of an earnings report or a news event

It is said that implied volatility of an option rises leading up to an earnings report or a pending news event like FDA trial, a possible takeover,elections(?) etc. My question is, implied volatility ...
27 views

### Does an Interest Rate Swap has a Vega component?

I am a bit confused on how you calculate vega for Interest Rate Swap. One argument is that IR Swap is a combination of fixed rate bond and floating rate bond. Since a bond has no vega component, IR ...
133 views

### Why is Brownian motion merely 'almost surely' continuous?

Why is Brownian motion required to be merely almost surely continuous instead of continuous? For example, this is stated as condition 2 in this article in section 1, Characterizations of the Wiener ...
45 views

### Markowitz Mean-Variance Implied Returns

What is the closed form solution for the following inverse Markowitz problem? Given a mean-variance optimized fully invested portfolio $X$, a risk aversion parameter $\lambda$ and a var-covar ...
357 views

### API-based equity screeners?

I know there are APIs from different brokers that allows you to trade and also obtain information about specific companies, but I wonder if there are equity/asset screeners that are API-based and can ...
21 views

### Proving there exists no arbitrage opportunities given 3 states and 2 assets

Assume there are 3 states of the world: w1, w2, and w3. Assume there are two assets: a risk-free asset returning Rf in each state, and a risky asset with Return R1 in state w1, R2 in state w2, and R3 ...
56 views

### hedging correlated instruments

If two instruments have a significant negative correlation but the percent change in the price of the instrument moving in positive direction is always more by a fraction than the one moving in ...
27 views

### OIS & LIBOR swap

Why do people use OIS and LIBOR swap spread to compare/value bonds/derivatives? Why not just use US treasury?
43 views

### Term structure of default probabilities without market data

With the forthcoming new regulations, IFRS9, financial institutions will be required to model life time expected credit losses. Consequently, it is necessary to model the term structure of default ...
16 views

### Reducing multicollinearity in Arbitrage Pricing model

I am working on a test example where the idea is to come up with a model that predicts S&P500 returns using the 9 S&P subsectors(XLY,XLP,XLF,etc) as FACTORS.Now i know there exists ...
123 views

### How to get Black Scholes' Geometric Brownian Motion differential form form the closed form?

My instructor has mostly self contained notes, where our textbook is mostly a reference. She has it written that: S_t = S_0e^{(\mu - \frac{\sigma^2}{2})t + \sigma W_t} \iff dS_t = S_t(\mu dt + ...
78 views

### Time-independent local volatility

Suppose somebody provides us with a surface of European call prices $C(\tau,K)$ where $\tau$ stands for time-to-maturity and $K$ for the strike. By Dupire's results, there is a unique local volatility ...
228 views

### ex ante tracking error correlation between funds

I have two portfolio's called Comb & Global. They both have the same investable universe lets says 3000 stocks & are measured against the same benchmark. So it is possible that both funds hold ...
37 views

### Incorrect characterization of spot rate?

Is the t in the red boxed $R(t,T)$ supposed to be the same as the S in the green boxed $R(S,T)$?
92 views

### Non-Negative Matrix Factorization - Estimating the Mean

How do you estimate the mean in a Non-Negative Matrix Factorization framework? It is obvious and well known how to estimate the covariance matrix, how ever I also need the estimated mean. I'm ...
160 views

### Copulas simply explained

I try to understand the basic idea of copulas, however I am still struggling and hope that someone can help me. I understood that in general a copula is a function which links several marginal ...
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### Why does the volatility smile flatten as maturities increase?

First, I can't find a purely "financial" explanation for this. Also the only mathematical explanation I've found so far was using the large deviations theory, which is quite complex. Is there a ...
25 views

### forward curve and cap/floors in nowadays environment

I'm currently trying to get the implied volatility of a vanilla Euro floor with maturity 1Y with data from bloom. I have the price ( which is not supposed to take into account the first floorlet ...
25 views

### De-annualizing a target alpha return

apologies if this is not the correct place for this type of question, but I just want to confirm if the following de-annualization is correct. if a manager states that he will earn 200 bps of target ...
20 views

### Calculating the optimal portfolio for an investor with quadratic utility

The problem is from Asset Pricing and Portfolio Theory by Back and can be found here. The relevant info from section 2.5 can be found here. Given that we have the Expected value and the variance of ...
81 views

### Feature Selection Effect on Deep Multi-Layer-Perceptron for Financial Applications

I am trying to build a machine learning system for financial price prediction. I am using a 3 layer MLP (a deep network) with 3 outputs (buy,hold,sell). I am using different features such as price ...
64 views

### Black Scholes: How does it help to transform uncertainty and still not be able to calculate a fair price?

Recapitulating the history of Black-Scholes: Nobody knows the fair price of options. Revolution: BS! You put in all the parameters and get a price -> A Nobel Prize for that one! Wait: Nobody knows ...
68 views

### Differential of stochastic term

Question 1: How does one come up with the equation in the red box below? It looks like some kind product rule, but I'm not sure how to apply Ito's lemma here. Bjork doesn't seem to explain it ...
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