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1500 questions
8
votes
1 answer
Transforming 3M volatilities into 6M volatilities in EUR forecast curves
I have implemented a stripping algorithm to extract forward volatilities from cap/floor flat volatilities for different currencies. I am however struggling a bit when implementing a method to convert the first 2 year 3M flat vols into 6M flat vols…
Adam
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8
votes
2 answers
Cost of rolling futures contracts
Futures are traded on margin, so that the P&L of any open position is realized on the posted margin. To maintain a constant exposure to the future, an expiring contract needs to be rolled into a new contract. I have read that the cost of doing this…
Comp_Warrior
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8
votes
1 answer
Are there "live" uses of the Generalized Method of Moments or are they all academic?
I see the Generalized Method of Moments suggested in numerous academic papers as a way to calibrate stochastic volatility models. However, any decent trading shop is going to calibrate to observable option prices instead.
Are there any places that…
Brian B
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8
votes
3 answers
Creating Options Database
I am trying to create a database which will hold information for various stock options and will need to be updated daily. The idea is to use this database to keep track of changes in the open interest and use that for trading and research.
I am…
deepiceman
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8
votes
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recent developments in American options?
I have read the paper written by Egloff (2005) using machine learning techniques to solve the optimal stopping problem.
Is there any development in pricing American options during 2005-2016? (based on Monte Carlo)
I appreciate it if you can offer me…
Lookout
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8
votes
1 answer
Implications of shifting the lognormal model for forward rates from a probability perspective
I have a question regarding the application of a shift to the Black-Scholes formula for negative forward rates.
I am reading in the Brigo book that "increasing the shift $\alpha$ shifts the volatility curve down, whereas decreasing $\alpha$ shifts…
Adam
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8
votes
2 answers
Why do institutions backtest?
I see that institutions still use backtesting by computing P&Ls over historical data and then compute some aggregating ratios to see whether a trading strategy is good or not even though it is not a rigourous approach at all. I mean, how can a…
BS.
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8
votes
3 answers
Where can I get two to four years worth of historic data news for companies included in DJ and S&P?
Where can I get two to four years worth of historic data news for companies included in DJ and S&P? I mean not just prices historic data but also news.
Preferably for free and in CSV or any similar form.
Ivegotaquestion
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8
votes
3 answers
Return Attribution: Possible remedies for multicollinearity
Let's say I have the following regression setup, which I am using for portfolio return attribution:
$R = 1*\beta(1) + A*\beta(2) + B*\beta(3) + C*\beta(4) + \epsilon $
where A is dummy matrix of country ,
B is a dummy matrix of Industries,
…
silencer
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8
votes
1 answer
Theoretical limits for contango and backwardation
What do you think would be the theoretical limit for contango? What about backwardation?
This was asked in an interview. I am still not so sure about the answer.
szd116
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8
votes
3 answers
How to compute the alpha decay of a strategy?
How can one compute the alpha decay of a systematic trading strategy?
Belmont
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8
votes
3 answers
Convexity of BS Equation for Call and Put
I have a simple question.
Is the Black-Scholes Formula convex with respect to Implied volatility parameter $\sigma$ (for calls or put) ?
When I say Black-Scholes I mean for a call the following one (on Forward price $F_t$):
$$Call (F_t,T-t, K,…
TheBridge
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8
votes
1 answer
How sensitive are vertical spreads to changes in implied volatility?
How sensitive are vertical spreads to changes in volatility / implied volatility in the money, at the money, and out of the money?
I'm thinking for 1 point spreads this would be very small / neutral for ITM, ATM, and OTM, but I'm not sure. If you…
Ray
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8
votes
2 answers
What changes to put-call parity are necessary when evaluating american options on non-dividend paying assets?
If an underlying doesn't pay dividends (for our purpose defined as any distribution to the underlying's holder) directly or indirectly (e.g. options on futures) how does put-call parity change from the usual assumption of a European option?
In…
gvkv
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8
votes
1 answer
How does Kalman filtering of beta in pairs trading model work in R?
Could anyone show how this could be done in R? The dlm package seems to be a good start, but I can't really find any good examples to learn from.
Currently I have two timeseries of the closing prices for two stocks. I then do a rolling regression…
c00kiemonster
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