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1 | 1 | null | null | 26 | 5651 | To get the ball rolling... I will answer this question this evening
For people aware & unaware I think it would be a great way to introduce the group, resources for fundamental knowledge & concepts.
| What are some good technical and non-technical books for a math lover to get in to quantitative analysis? | CC BY-SA 2.5 | null | 2011-01-31T21:02:03.567 | 2011-01-31T21:39:02.880 | 2011-01-31T21:13:15.943 | 23 | 6 | [
"learning",
"finance",
"books",
"quantitative",
"analysis"
] |
2 | 2 | null | 1 | 6 | null | I like Statistics and Data Analysis for Financial Engineering by David Ruppert
(http://www.amazon.com/gp/product/1441977864/ref=oss_product)
| null | CC BY-SA 2.5 | null | 2011-01-31T21:05:44.007 | 2011-01-31T21:05:44.007 | null | null | 33 | null |
3 | 1 | null | null | 12 | 1800 | I want to start learning quantitative finance, what articles or blogs should I look at to start?
Also see the Related Question on [Quantitative Finance Books](https://quant.stackexchange.com/questions/1/what-are-some-good-technical-and-non-technical-books-for-a-math-lover-to-get-in-t)
| What blogs or articles online should I read to get started with quantitative finance? | CC BY-SA 2.5 | null | 2011-01-31T21:07:18.193 | 2011-01-31T21:53:08.947 | 2017-04-13T12:46:23.000 | -1 | 27 | [
"learning",
"finance"
] |
4 | 2 | null | 1 | 5 | null | John C. Hull's ["Options, Futures, and
Other Derivatives"](http://www.rotman.utoronto.ca/~hull/ofod/) is the mostly widely recognized introductory book for derivatives valuation.
| null | CC BY-SA 2.5 | null | 2011-01-31T21:08:35.820 | 2011-01-31T21:08:35.820 | null | null | 17 | null |
5 | 1 | 120 | null | 19 | 899 | How do you model concentration risk of credit portfolio in IRB/Basel II framework?
| Concentration risk in credit portfolio | CC BY-SA 2.5 | null | 2011-01-31T21:08:50.550 | 2014-07-16T15:52:43.620 | 2011-02-01T16:53:40.297 | 40 | 40 | [
"risk",
"credit"
] |
6 | 2 | null | 1 | 5 | null | This may be too basic a book for what you're hungering for. In preparation for the Financial Engineering actuarial exam, I'm studying from Derivative Markets by McDonald.
It's very technical, but gives a great introduction to the mathematics behind pricing options and even goes into depth on Brownian motion.
Check it o... | null | CC BY-SA 2.5 | null | 2011-01-31T21:09:01.193 | 2011-01-31T21:09:01.193 | null | null | 30 | null |
8 | 2 | null | 1 | 5 | null | I like the following book (though have only very briefly skimmed it):
- Optimization methods in finance
| null | CC BY-SA 2.5 | null | 2011-01-31T21:09:30.940 | 2011-01-31T21:09:30.940 | null | null | 29 | null |
9 | 1 | 16 | null | 17 | 2249 | It seems that VIX futures could be a great hedge for a long-only stock portfolio since they rise when stocks fall. But how many VIX futures should I buy to hedge my portfolio, and which futures expiration should I use?
| Hedging stocks with VIX futures | CC BY-SA 2.5 | null | 2011-01-31T21:09:36.020 | 2019-11-23T17:55:18.170 | null | null | 37 | [
"equities",
"vix",
"hedging"
] |
10 | 2 | null | 1 | 20 | null | Clark,
This is one of the popular questions we have on our community when someone new to the field come in and ask where they should start.
We point them all to the list we have gathered which is now one of the most comprehensive list for quant finance
[http://www.quantnet.com/master-reading-list-for-quants/](http://ww... | null | CC BY-SA 2.5 | null | 2011-01-31T21:10:16.820 | 2011-01-31T21:10:16.820 | null | null | 43 | null |
11 | 2 | null | 1 | 6 | null | [Options, Futures, and Other Derivatives](http://rads.stackoverflow.com/amzn/click/0132164949)
[Analysis of Financial Time Series](http://rads.stackoverflow.com/amzn/click/0470414359)
[Inside the Black Box: The Simple Truth About Quantitative Trading](http://rads.stackoverflow.com/amzn/click/0470432063)
[Trading and Ex... | null | CC BY-SA 2.5 | null | 2011-01-31T21:10:50.130 | 2011-01-31T21:10:50.130 | null | null | 35 | null |
12 | 2 | null | 1 | 6 | null | One that I found via google that seems promising (for beginners though) is.
[Numerical methods in finance and Economics](http://books.google.com/books?id=litw2D3bLwMC&lpg=PP1&dq=optimization%20methods%20finance&pg=PP1#v=onepage&q=optimization%20methods%20finance&f=false)
| null | CC BY-SA 2.5 | null | 2011-01-31T21:10:54.370 | 2011-01-31T21:10:54.370 | null | null | 29 | null |
13 | 2 | null | 3 | 3 | null | Mark Joshi's advice - [http://www.markjoshi.com/downloads/advice.pdf](http://www.markjoshi.com/downloads/advice.pdf) (On becoming a quant)
It's quite useful to get some insight into sorts of quantitative analysts, their repsonsibilites, type of companies, requirements for interviews etc ... just a great article to begi... | null | CC BY-SA 2.5 | null | 2011-01-31T21:11:11.057 | 2011-01-31T21:11:11.057 | null | null | 15 | null |
14 | 1 | 34 | null | 21 | 18850 | At my work I often see option prices or vols quoted against deltas rather than against strikes. For example for March 2013 Zinc options I might see 5 quotes available for deltas as follows:
```
ZINC MARCH 2013 OPTION DELTA -10 POINTS
ZINC MARCH 2013 OPTION DELTA -25 POINTS
ZINC MARCH 2013 OPTION DELTA +10 POINTS
ZINC ... | What is the "delta" option quoting convention about? | CC BY-SA 2.5 | 0 | 2011-01-31T21:13:06.893 | 2016-08-10T07:54:14.220 | 2011-01-31T21:32:40.543 | 70 | 39 | [
"options",
"greeks"
] |
15 | 2 | null | 3 | 9 | null | Second Joshi guide but yout you can do better than that.
We have a list for all level, some of them are free to download (just like Joshi), others are books and websites that for beginner level
[http://www.quantnet.com/master-reading-list-for-quants/](http://www.quantnet.com/master-reading-list-for-quants/)
As for webs... | null | CC BY-SA 2.5 | null | 2011-01-31T21:13:09.483 | 2011-01-31T21:33:51.200 | 2011-01-31T21:33:51.200 | 43 | 43 | null |
16 | 2 | null | 9 | 20 | null | VIX measures volatility. It doesn't always go up if stocks go down.
| null | CC BY-SA 2.5 | null | 2011-01-31T21:16:23.517 | 2011-01-31T21:16:23.517 | null | null | null | null |
17 | 2 | null | 1 | 6 | null | My type is "[An introduction to the mathematics of financial derivatives](http://books.google.com/books?id=mWzMpAex1_kC)" by Salih N. Neftci. Though it's definitely harder to digest than Hull.
| null | CC BY-SA 2.5 | null | 2011-01-31T21:17:03.017 | 2011-01-31T21:17:03.017 | null | null | 38 | null |
18 | 1 | null | null | 30 | 17342 | There are [three different commonly used Value at Risk (VaR) methods](http://www.investopedia.com/articles/04/092904.asp):
- Historical method
- Variance-Covariance Method
- Monte Carlo
What is the difference between these approaches, and under what circumstances should each be used?
| What is the difference between the methods for calculating VaR? | CC BY-SA 2.5 | null | 2011-01-31T21:17:48.897 | 2017-10-05T00:02:50.300 | null | null | 17 | [
"risk",
"value-at-risk"
] |
19 | 2 | null | 3 | 5 | null | [Wilmott](http://www.wilmott.com/) and [NuclearPhynance](http://www.nuclearphynance.com/) are two fairly popular forums, although [quant.stackexchange.com](http://quant.stackexchange.com) will hopefully serve as a better resource in the future.
| null | CC BY-SA 2.5 | null | 2011-01-31T21:20:04.807 | 2011-01-31T21:20:04.807 | null | null | 17 | null |
20 | 1 | 62 | null | 20 | 3172 | When using time-series analysis to forecast some type of value, what types of error analysis are worth considering when trying to determine which models are appropriate.
One of the big issues that may arise is that successive residuals between the 'forecast' and the 'realized' value of the variable may not be properly ... | What type of analysis is appropriate for assessing the performance time-series forecasts? | CC BY-SA 2.5 | null | 2011-01-31T21:25:28.170 | 2016-10-26T07:39:48.443 | null | null | 61 | [
"forecasting"
] |
23 | 2 | null | 3 | 2 | null | [Bionic Turtle's](http://www.bionicturtle.com/forum/) forums aren't bad. Some of it is aimed at the FRM (Financial Risk Manager) exam, but there's also a [section dedicated to Quant Finance](http://www.bionicturtle.com/forum/viewforum/5/).
| null | CC BY-SA 2.5 | null | 2011-01-31T21:51:01.163 | 2011-01-31T21:51:01.163 | null | null | 79 | null |
24 | 2 | null | 3 | 4 | null | I like this site [http://quant.ly/](http://quant.ly/)
| null | CC BY-SA 2.5 | null | 2011-01-31T21:53:08.947 | 2011-01-31T21:53:08.947 | null | null | 82 | null |
25 | 1 | 28 | null | 49 | 8640 | According to the [Wikipedia article](http://en.wikipedia.org/wiki/Option_(finance)#Historical_uses_of_options),
>
Contracts similar to options are believed to have been used since ancient times.
In London, puts and "refusals" (calls) first became well-known trading instruments in the 1690s during the reign of William ... | Option pricing before Black-Scholes | CC BY-SA 2.5 | null | 2011-01-31T21:56:54.423 | 2020-04-02T11:54:56.323 | 2020-06-17T08:33:06.707 | -1 | 70 | [
"options",
"history",
"black-scholes"
] |
26 | 1 | 77 | null | 27 | 12612 | Are there any empirical observations or practices when to prefer Local Volatility Model for pricing over Stochastic Model or vice versa?
| Local Volatility vs. Stochastic Volatility | CC BY-SA 2.5 | null | 2011-01-31T21:56:55.617 | 2021-04-25T01:34:28.240 | null | null | 15 | [
"local-volatility",
"stochastic-volatility"
] |
27 | 1 | 58 | null | 20 | 15585 | When looking at option chains, I often notice that the (broker calculated) implied volatility has an inverse relation to the strike price. This seems true both for calls and puts.
As a current example, I could point at the SPY calls for MAR31'11 : the 117 strike has 19.62% implied volatility, which decreaseses quite s... | Why does implied volatility show an inverse relation with strike price when examining option chains? | CC BY-SA 2.5 | null | 2011-01-31T21:57:05.983 | 2019-08-27T13:22:09.873 | null | null | 53 | [
"options",
"implied-volatility",
"option-pricing"
] |
28 | 2 | null | 25 | 23 | null | You may want to look at Chapter 5 - "The Quest for the Option Formula" from the [Derivatives](http://web.archive.org/web/20101026225940/http://www.thederivativesbook.com/contents.html) book. The book is available online for free and it has a very decent review of approaches that were used 20-30 years before the Black-S... | null | CC BY-SA 3.0 | null | 2011-01-31T22:02:11.603 | 2015-05-18T08:59:43.173 | 2015-05-18T08:59:43.173 | 15485 | 15 | null |
29 | 2 | null | 25 | 12 | null | I think this slightly misses the point. Before Black-Scholes options prices were set entirely by human judgement, just like prices in many other markets are set, which is why this model was so important. Peter Bernstein has a good recollection of this kind of behavior in ["Capital Ideas"](http://rads.stackoverflow.co... | null | CC BY-SA 2.5 | null | 2011-01-31T22:06:18.477 | 2011-01-31T22:06:18.477 | null | null | 17 | null |
30 | 1 | 1131 | null | 8 | 1160 | There are few methods like Copeland-Antikarov, Herath-Park, Cobb-Charnes etc. to compute project volatility, however these methods compute upward biased volatility.
What is the best method I could use to compute project volatility for real option valuation?
| What is the best method to compute project volatility in Real Option Valuation? | CC BY-SA 2.5 | null | 2011-01-31T22:18:28.133 | 2014-02-13T18:59:46.427 | 2014-02-13T18:59:46.427 | null | null | [
"options",
"volatility",
"real-options"
] |
31 | 2 | null | 25 | 8 | null | To add on to what others have said: the formula still does not provide a price -- just a way to calculate "implied" volatility. The BSM calculates a hypothetical value (using binary branchings as the storytelling tool) and this hypothetical merely provides a reference for this common "what-if" question.
The only sense ... | null | CC BY-SA 2.5 | null | 2011-01-31T22:31:35.177 | 2011-01-31T22:31:35.177 | null | null | 104 | null |
32 | 2 | null | 9 | 12 | null | VIX also has a lot of complexities that make it a less-than-ideal hedging tool if you're buying a VIX ETF.
[http://vixandmore.blogspot.com/](http://vixandmore.blogspot.com/) goes into it at length and can probably also answer any questions you have about the VIX as a hedge.
To expand on what @barrycarter said, the VIX ... | null | CC BY-SA 2.5 | null | 2011-01-31T22:35:53.580 | 2011-01-31T22:35:53.580 | null | null | 104 | null |
33 | 2 | null | 18 | 14 | null | There are many advantages and flaws to each quoted method by Shane(presuming that I understand them properly), the first one has the big main advantage that it doesn't need any evaluation of probability law, it is just some kind of evolved scenario re-playing "as of" today using the history of (usually) one day market ... | null | CC BY-SA 2.5 | null | 2011-01-31T22:38:14.193 | 2011-01-31T22:38:14.193 | null | null | 92 | null |
34 | 2 | null | 14 | 14 | null | Delta is the partial derivative of the value of the option with respect to the value of the underlying asset. An option with a delta of 0.5 (here listed as +50 points) goes up \$0.50 if the underlying asset goes up \$1.00. Or goes down \$0.50 if the underlying asset goes down \$1.00. Keep in mind that delta is an insta... | null | CC BY-SA 2.5 | null | 2011-01-31T22:41:05.343 | 2011-01-31T22:41:05.343 | null | null | 106 | null |
35 | 1 | 193 | null | 17 | 2593 | Consider the following strategies:
- a stat arb strategy with no overnight exposure, but significant market exposure intraday.
- a market timing model which is always long or short the market.
- etc
is it meaningful to consider the betas of strategies like these? Or should we ignore beta when the portfolio returns... | is beta of a portfolio always meaningful? | CC BY-SA 2.5 | null | 2011-01-31T23:07:33.457 | 2011-02-09T17:29:51.550 | null | null | 108 | [
"hedging",
"beta",
"portfolio"
] |
36 | 1 | 1835 | null | 17 | 1048 | Assume we decompose the daily (log) returns of a stock as beta times market movement plus an idiosyncratic part. If this is done ex-ante, what proportion of the variance is explained by the market component vs. the idiosyncratic part? I am looking more for rule of thumb/experience of others, based on, say, U.S. equitie... | Approximately what proportion of a stock’s volatility is explained by market movement? | CC BY-SA 2.5 | null | 2011-01-31T23:09:04.517 | 2011-09-15T17:39:25.157 | null | null | 108 | [
"beta",
"variance",
"correlation",
"market"
] |
37 | 1 | null | null | 43 | 11122 | I'm currently using IB's Java API and getting feeds through them. However the real-time feed is updated only every 250ms and the historical feed only every second.
I'm primarily looking for ES data and other index futures and ETFs. I'm not looking at FX since that data is the most subjective since there is no exchange.... | What broker/feed/APIsetup allows for recording the most accurate data (cheaply)? | CC BY-SA 3.0 | null | 2011-01-31T23:13:33.573 | 2014-11-04T12:48:39.167 | 2013-04-04T14:16:46.253 | 1652 | 8 | [
"backtesting",
"data",
"high-frequency"
] |
38 | 1 | 444 | null | 15 | 1175 | What is the theoretical/mathematical basis for the valuation of [C]MBS and other structured finance products? Is the methodology mostly consistent across different products?
| How are prices calculated for commercial/residential mortgage-backed securities? | CC BY-SA 2.5 | 0 | 2011-01-31T23:45:21.927 | 2015-10-20T20:21:35.473 | 2011-01-31T23:57:54.333 | 117 | 117 | [
"mbs",
"valuation",
"structured-finance"
] |
39 | 2 | null | 35 | 10 | null | It partly depends on the use case.
If one is taking multiple strategies and assembling a portfolio that includes multiple different strategies and is mixing this with a heavy weighting to an equity index, then this might be a useful measure. [Zero or negative beta](http://en.wikipedia.org/wiki/Beta_%28finance%29) doe... | null | CC BY-SA 2.5 | null | 2011-01-31T23:49:03.780 | 2011-02-01T00:15:29.577 | 2011-02-01T00:15:29.577 | 17 | 17 | null |
40 | 2 | null | 25 | 15 | null | Options and futures were common instruments in France at the end of the 19th century. Louis Bachelier, [in his 1900 thesis](http://archive.numdam.org/article/ASENS_1900_3_17__21_0.pdf), derives the price of a European option when the underlying asset is normally distributed. Interestingly, he seems to have some strong ... | null | CC BY-SA 2.5 | null | 2011-01-31T23:57:46.457 | 2011-01-31T23:57:46.457 | null | null | 114 | null |
41 | 1 | 54 | null | 21 | 5096 | It appears that the log 'returns' of the VIX index have a (negative) correlation to the log 'returns' of e.g. the S&P 500 index. The r-squared is on the order of 0.7. I thought VIX was supposed to be a measure of volatility, both up and down. However, it appears to spike up when the market spikes down, and has a fairly... | Why does the VIX index have *any* correlation to the market? | CC BY-SA 2.5 | null | 2011-01-31T23:59:50.293 | 2019-08-14T22:11:46.297 | null | null | 108 | [
"vix",
"volatility",
"correlation",
"market"
] |
42 | 2 | null | 37 | 7 | null | The [T4 API ](http://www.ctsfutures.com/t4_api.aspx) is free to try for two weeks and it has really good [documentation](http://sim.t4login.com/help/api/)... if you contact their support they will usually extend your trial period as long as you want. Here are some of the features it has:
- Real-time market feed (ticks... | null | CC BY-SA 2.5 | null | 2011-02-01T00:02:55.453 | 2011-02-01T06:20:36.470 | 2011-02-01T06:20:36.470 | 78 | 78 | null |
43 | 1 | 277 | null | 27 | 14362 | Is there a standard model for market impact? I am interested in the case of high-volume equities sold in the US, during market hours, but would be interested in any pointers.
| Is there a standard model for market impact? | CC BY-SA 2.5 | null | 2011-02-01T00:03:23.143 | 2021-05-30T17:18:47.623 | null | null | 108 | [
"market-impact",
"models"
] |
44 | 1 | 73 | null | 31 | 6468 | One of the main problems when trying to apply mean-variance portfolio optimization in practice is its high input sensitivity. As can be seen in (Chopra, 1993) using historical values to estimate returns expected in the future is a no-go, as the whole process tends to become error maximization rather than portfolio opti... | What methods do you use to improve expected return estimates when constructing a portfolio in a mean-variance framework? | CC BY-SA 2.5 | null | 2011-02-01T00:08:54.067 | 2013-12-13T09:51:59.337 | null | null | 38 | [
"modern-portfolio-theory",
"mean-variance",
"expected-return",
"estimation"
] |
45 | 1 | 53 | null | 27 | 3218 | A potential issue with automated trading systems, that are based on Machine Learning (ML) and/or Artificial Intelligence (AI), is the difficulty of assessing the risk of a trade. An ML/AI algorithm may analyze thousands of parameters in order to come up with a trading decision and applying standard risk management prac... | How are risk management practices applied to ML/AI-based automated trading systems | CC BY-SA 2.5 | null | 2011-02-01T00:16:50.123 | 2012-04-17T12:02:37.053 | 2011-02-01T00:45:46.430 | 78 | 78 | [
"risk",
"algorithmic-trading",
"risk-management",
"best-practices",
"trading"
] |
46 | 2 | null | 43 | 10 | null | I don't believe that there is a "standard" model (per se); in fact, there are many considerations around market impact models, so you would need to be more specific. At the most basic level, you might define market as $P_{first fill} - P_{last fill}$ once your order in actually in the order book (e.g. not including ot... | null | CC BY-SA 3.0 | null | 2011-02-01T00:18:43.927 | 2017-08-29T08:25:20.103 | 2017-08-29T08:25:20.103 | 6283 | 17 | null |
47 | 1 | 49 | null | 17 | 8117 | I want to create a lognormal distribution of future stock prices. Using a monte carlo simulation I came up with the standard deviation as being $\sqrt{(days/252)}$ $*volatility*mean*$ $\log(mean)$. Is this correct?
| How to calculate future distribution of price using volatility? | CC BY-SA 2.5 | null | 2011-02-01T00:29:55.100 | 2011-10-02T13:09:50.310 | 2011-02-03T16:40:52.230 | 17 | 123 | [
"volatility",
"lognormal"
] |
48 | 2 | null | 41 | 1 | null | Markets seem to have a bias against being bearish. Lower stock prices are perceived as more risky, and as risk increases so does implied volatility. For example, as the market decreases there will generally be more demand for puts, causing higher prices and higher implied volatility. An up market will imply less volati... | null | CC BY-SA 2.5 | null | 2011-02-01T00:32:50.263 | 2011-02-01T00:32:50.263 | null | null | 117 | null |
49 | 2 | null | 47 | 6 | null | I'm not sure I understand, but if you want to compute the variance of $exp(X)$, where $X$ is normally distributed with mean $\mu$ and variance $\sigma^2$, that variance is (from [Wikipedia](http://en.wikipedia.org/wiki/Lognormal)):
$$\left(\exp{(\sigma^2)} - 1\right) \exp{(2\mu + \sigma^2)}$$
| null | CC BY-SA 2.5 | null | 2011-02-01T00:37:59.870 | 2011-02-01T00:37:59.870 | null | null | 108 | null |
50 | 2 | null | 44 | 9 | null | You raise a very important point, which unfortunately doesn't have a simple answer.
Black-Litterman addresses the allocation problem by allowing you to provide a prior within a bayesian framework. It doesn't really tell you how to produce the prior itself. But more importantly, it doesn't address the fundamental pr... | null | CC BY-SA 2.5 | null | 2011-02-01T00:40:27.277 | 2011-02-01T00:40:27.277 | null | null | 17 | null |
51 | 2 | null | 36 | 5 | null | I just want to give a qualitative assessment to your question:
Volatility of a market is different than the volatility of a stock. Similarly like Copeland and Antikarov (2001) say that "...the volatility of a gold mine is different than the volatility of a gold..."
If you want to quantitatively compute the percentage o... | null | CC BY-SA 2.5 | null | 2011-02-01T00:46:06.640 | 2011-02-01T03:31:53.873 | 2011-02-01T03:31:53.873 | null | null | null |
52 | 2 | null | 25 | 21 | null | The man who grasps principles can successfully select his own methods. The man who tries methods, ignoring principles, is sure to have trouble.
~ Ralph Waldo Emerson ~
Black-Scholes made it possible for an idiot with a calculator to imagine that he was smart enough to judge the value of options ... it has always been p... | null | CC BY-SA 4.0 | null | 2011-02-01T00:58:55.857 | 2020-04-02T11:54:30.527 | 2020-04-02T11:54:30.527 | 38257 | 121 | null |
53 | 2 | null | 45 | 13 | null | The risks involved in trading is everywhere and always a multifaceted thing: it includes the volatility of the selected asset, the leverage and concentration of the porfolio, whether there is a stop loss, a hedge, etc. Also, risk management is frequently not tied to the "alpha model" directly (e.g. VaR, shortfall, and... | null | CC BY-SA 2.5 | null | 2011-02-01T01:08:27.770 | 2011-02-01T01:18:55.873 | 2011-02-01T01:18:55.873 | 17 | 17 | null |
54 | 2 | null | 41 | 15 | null | Increased volatility (high VIX) signifies more risk. To keep their portfolio in line with their risk preferences, market participants deleverage. Since long positions outweigh short positions in the market as a whole, deleveraging entails a lot of selling and less buying. The relative increase in selling causes downwa... | null | CC BY-SA 2.5 | null | 2011-02-01T03:04:25.137 | 2011-02-01T03:04:25.137 | null | null | 53 | null |
55 | 2 | null | 47 | 3 | null | The distribution of the log of a stock price in n days is a normal
distribution with mean of $\log(current_price)$ and standard deviation of
$volatility*\sqrt(n/365.2425)$ if you're using calendar days, and
assuming no dividends and 0% risk-free interest rate.
Note that the standard deviation is independent of the ... | null | CC BY-SA 2.5 | null | 2011-02-01T03:12:21.777 | 2011-02-03T16:39:41.613 | 2011-02-03T16:39:41.613 | 117 | null | null |
56 | 2 | null | 27 | 5 | null | "My intuition would be that volatility is a property of the
underlying, and should therefore be roughly the same regardless of
strike price".
I agree, but the market doesn't. People who buy out-of-money calls
tend to be more optimistic than those who buy at-the-money calls, so
out-of-money calls are "overpriced" a... | null | CC BY-SA 2.5 | null | 2011-02-01T03:32:58.180 | 2011-02-01T03:32:58.180 | null | null | null | null |
57 | 2 | null | 37 | 8 | null | [http://ratedata.gaincapital.com/](http://ratedata.gaincapital.com/) has tick by tick historical data for Forex if that helps.
| null | CC BY-SA 2.5 | null | 2011-02-01T03:35:29.347 | 2011-02-01T03:35:29.347 | null | null | null | null |
58 | 2 | null | 27 | 14 | null | The skew is almost always bid for puts on the stock market. When stocks go down, people tend to panic and volatility goes up as a result. Since the puts get more vega when the market goes down, they trade at higher vols. Read up on stochastic volatility for a more in-depth explanation.
| null | CC BY-SA 2.5 | null | 2011-02-01T03:43:35.793 | 2011-02-01T03:43:35.793 | null | null | 83 | null |
59 | 2 | null | 20 | 5 | null | I am not sure I clearly understand your question. But definitely you can do some analysis on the residuals, especially autocorrelation. If you find any significant autocorrelation, I suggest you add a ARMA process to your model to increase the accuracy of your forecast.
| null | CC BY-SA 2.5 | null | 2011-02-01T03:44:01.427 | 2011-02-01T03:44:01.427 | null | null | 134 | null |
60 | 1 | 155 | null | 9 | 3325 | I would like to take advantage of a volatile market by selling highs and buying lows. As we all know the RSI indicator is very bad and I want to create a superior strategy for this purpose.
I have tried to model the price using a time varying ARMA process, with no success for now.
Any other ideas?
| Mean reverting strategies | CC BY-SA 2.5 | null | 2011-02-01T03:49:06.897 | 2011-02-03T19:47:03.307 | null | null | 134 | [
"arima",
"strategy"
] |
61 | 2 | null | 26 | 10 | null | For pricing and hedging a portfolio of vanilla options, stochastic volatility is almost always preferable to local volatility since empirically it more accurately captures the evolution of the smile.
| null | CC BY-SA 2.5 | null | 2011-02-01T03:54:24.580 | 2011-02-01T03:54:24.580 | null | null | 83 | null |
62 | 2 | null | 20 | 14 | null | I think you're looking for some way to test for autocorrelation in your residuals. If your model is good -- let's say you have an ARMA(1, 1) model for your forecast -- then the residuals from this model will be white noise. Which is to say that the difference between your forecast and the realization can not be predict... | null | CC BY-SA 2.5 | null | 2011-02-01T03:59:30.460 | 2011-02-01T03:59:30.460 | null | null | 106 | null |
65 | 2 | null | 36 | 5 | null | So my first answer was off base. For some reason I was thinking first moment (idiosyncratic returns), but he's looking for second moment (idiosyncratic volatility). There is a line of research on the returns to portfolios sorted on idiosyncratic volatility and I was hoping that there were descriptive statistics that sa... | null | CC BY-SA 2.5 | null | 2011-02-01T04:17:33.630 | 2011-02-02T12:55:44.147 | 2011-02-02T12:55:44.147 | 106 | 106 | null |
66 | 1 | 70 | null | 13 | 3955 | Explain pair trading to a layman. What is it, why would you want to do it, and what are the risks? Provide a real life example.
| How does pair trading work? | CC BY-SA 3.0 | null | 2011-02-01T04:19:13.130 | 2017-05-30T23:29:16.827 | 2012-02-24T07:08:05.813 | 74 | 74 | [
"pairs-trading"
] |
67 | 2 | null | 25 | 7 | null | Ed Thorp is of the opinion that he could price options properly before Fischer and Myron:
[link here (doc)](http://www.google.ca/url?sa=t&source=web&cd=3&ved=0CCkQFjAC&url=http%3A%2F%2Fwww.edwardothorp.com%2Fsitebuildercontent%2Fsitebuilderfiles%2Foptiontheory.doc&ei=q4hHTbr-CIiqsAOt6rCiAg&usg=AFQjCNHsCRmQcDkfu9F9o5DIF... | null | CC BY-SA 2.5 | null | 2011-02-01T04:54:02.633 | 2011-02-01T04:54:02.633 | null | null | 74 | null |
68 | 2 | null | 45 | 20 | null | ML/AI systems are susceptible to a number of risks not traditionally discussed in risk management:
- What I call 'backtest arbitrage'. In the process of automated model generation and testing, your machine learner may discover, exploit, and concentrate on irregularities in your backtesting system which do not exist in... | null | CC BY-SA 2.5 | null | 2011-02-01T05:22:16.193 | 2011-02-01T05:22:16.193 | null | null | 108 | null |
70 | 2 | null | 66 | 17 | null | Pair trading is a market neutral bet. Instead of saying the market in general is going higher, you say one investment under/overvalued relative to another, typically similar, investment. The bet is that the spread between the two will widen or narrow depending on how you set it up.
For instance, say I feel GM is goin... | null | CC BY-SA 2.5 | null | 2011-02-01T06:05:48.380 | 2011-02-01T20:00:56.730 | 2011-02-01T20:00:56.730 | 60 | 60 | null |
71 | 2 | null | 35 | 2 | null | In response to your last question, "how do you use beta?" - I'd say try to as little as possible. Your use seems to be a bit out of the realm of what I'm used to, but whatever beta you get is so prone to observational error, that it may not be meaningful.
| null | CC BY-SA 2.5 | null | 2011-02-01T06:15:06.667 | 2011-02-01T06:15:06.667 | null | null | 60 | null |
73 | 2 | null | 44 | 20 | null | Short of having a 'reasonable' predictive model for expected returns and the covariance matrix, there are a couple lines of attack.
- Shrinkage estimators (via Bayesian inference or Stein-class of estimators)
- Robust portfolio optimization
- Michaud's Resampled Efficient Frontier
- Imposing norm constraints on por... | null | CC BY-SA 2.5 | null | 2011-02-01T06:50:51.180 | 2011-02-01T06:50:51.180 | null | null | 139 | null |
74 | 1 | 94 | null | 46 | 76756 | There are all kinds of tools for backtesting linear instruments (like stocks or stock indices). It is a completely different story when it comes to option strategies. Most of the tools used are bespoke software not publicly available. Part of the reason for that seems to be the higher complexity involved, the deluge of... | Are there any good tools for back testing options strategies? | CC BY-SA 3.0 | null | 2011-02-01T07:54:30.207 | 2022-12-17T00:59:35.300 | 2011-09-10T02:35:03.620 | 1355 | 12 | [
"backtesting",
"option-strategies",
"software"
] |
75 | 2 | null | 25 | 14 | null | There is a missing link to early options pricing literature which had been overlooked. Put-call parity along with static delta hedging were understood in actionable detail well before BSM and trading and risk management were accomplished through heuristic methods which indeed continued to be used after BSM.
Would point... | null | CC BY-SA 4.0 | null | 2011-02-01T08:07:31.040 | 2020-04-02T11:54:56.323 | 2020-04-02T11:54:56.323 | 38257 | 113 | null |
76 | 2 | null | 44 | 14 | null | Both answers from Shane and Vishal Belsare make sense and detail different models.
In my experience, I have never been satisfied by a unique model since the majority of papers out there can be split in two categories:
- Those that predict the mean component of the problem.
- Those that predict the variance component ... | null | CC BY-SA 2.5 | null | 2011-02-01T08:09:16.683 | 2011-02-01T08:09:16.683 | null | null | 150 | null |
77 | 2 | null | 26 | 17 | null | There is another reason why Stoc Vol Models should be usually preferred to Local Vol Models, this reason is explained in the Hagan et al. paper ["Managing Smile Risk"](http://www.math.columbia.edu/~lrb/sabrAll.pdf) about SABR process and is in simple terms the fact that "smile dynamics" is poorly predicted by local vol... | null | CC BY-SA 3.0 | null | 2011-02-01T08:46:35.637 | 2014-01-27T16:38:56.060 | 2014-01-27T16:38:56.060 | null | 92 | null |
78 | 2 | null | 25 | 6 | null | You find lots of info in part 3 "(3. Myth 1: people did not properly “price” options before the Black–Scholes–Merton theory)" of this paper:
"Option traders use (very) sophisticated heuristics, never the Black–Scholes–Merton formula": [http://linkinghub.elsevier.com/retrieve/pii/S0167268110001927](http://linkinghub.el... | null | CC BY-SA 3.0 | null | 2011-02-01T08:52:33.347 | 2012-12-14T13:40:29.910 | 2012-12-14T13:40:29.910 | 12 | 12 | null |
79 | 1 | null | null | 38 | 14131 | Naively, it seems that Bayesian modeling, structural models particularly, would be quite useful in finance because of their ability to incorporate market idiosyncrasies and produce accurate probabilistic estimates.
The down-side of course, is model-brittleness and extremely slow computational speed. Has the Quant comm... | How useful is Markov chain Monte Carlo for quantitative finance? | CC BY-SA 3.0 | null | 2011-02-01T10:09:20.380 | 2011-09-09T13:13:58.610 | 2011-09-08T21:00:20.593 | 1106 | 163 | [
"probability",
"monte-carlo",
"modeling"
] |
80 | 1 | null | null | 11 | 1369 | Are the prices of e-minis such as S&P 500, Russell 2000, EUROSTOXX, etc. manipulated? That is, are there traders who trade large enough positions to make the price go in the direction they want, taking unfair advantage of the rest of the traders in that market?
If so, what implication does this have for designing any t... | Are e-mini markets manipulated? | CC BY-SA 2.5 | null | 2011-02-01T10:35:02.527 | 2015-06-20T21:58:58.593 | null | null | 164 | [
"market-impact"
] |
81 | 1 | null | null | 26 | 4176 | Mean-reversion and trend-following strategies have some kind of a theory behind them that explains why they might work, if implemented well. Pattern-recognition, on the other hand, seems like nothing more than data mining and overfitting. Could patterns possibly have any predictive value? In other words, is there any ... | Is there any theoretical basis for pattern-recognition strategies? | CC BY-SA 2.5 | null | 2011-02-01T10:58:19.637 | 2019-06-17T11:52:50.683 | null | null | 164 | [
"theory"
] |
82 | 1 | 130 | null | 27 | 4933 | I heard about MetaTrader from [http://www.metaquotes.net](http://www.metaquotes.net). Is there any other framework or program available? Do you use different software for backtracking and running your trading algorithms?
Thank you guys for your great answers. I will check out the posted applications.
| What kind of basic framework or application do you use to run your trading algorithms? | CC BY-SA 2.5 | null | 2011-02-01T11:10:04.150 | 2011-02-09T03:59:00.753 | 2011-02-04T17:55:24.680 | 53 | 26 | [
"data",
"software",
"programming",
"algorithm"
] |
83 | 2 | null | 81 | 8 | null | General answer to a very general question:
If you find a significant pattern which distinguishes between structure and noise you understand something about that system. You have a model about it so you can extrapolate and forecast. On that basis you can use this model to make money. In that sense mean-reversion and tr... | null | CC BY-SA 2.5 | null | 2011-02-01T11:18:29.167 | 2011-02-01T11:18:29.167 | null | null | 12 | null |
84 | 1 | 110 | null | 28 | 29840 | I know the derivation of the Black-Scholes differential equation and I understand (most of) the solution of the diffusion equation. What I am missing is the transformation from the Black-Scholes differential equation to the diffusion equation (with all the conditions) and back to the original problem.
All the transfor... | Transformation from the Black-Scholes differential equation to the diffusion equation - and back | CC BY-SA 2.5 | null | 2011-02-01T11:43:21.703 | 2019-07-29T13:12:38.367 | 2011-02-09T20:09:50.543 | 70 | 12 | [
"black-scholes",
"differential-equations"
] |
85 | 1 | 88 | null | 48 | 5253 | Back in the mid 90's I used the Black-Scholes Model and the Cox-Ross-Rubenstein (Binomial) Model's to price Options. That was nearly 15 years ago and I was wondering if there are any new models being used to price Options?
| Are there any new Option pricing models? | CC BY-SA 2.5 | null | 2011-02-01T12:04:09.257 | 2016-02-23T09:29:50.377 | null | null | 169 | [
"black-scholes",
"option-pricing"
] |
86 | 2 | null | 14 | 5 | null | I handle volatility curves where moneyness is quoted in delta by an iterative guess:
- Use an initial guess for delta of 0.5 (call)/-0.5 (put)
- Look up the volatility on the curve using the guess for delta
- Calculate delta for the option using the vol found in 2.
- Repeat using Newton-Raphson, until the differenc... | null | CC BY-SA 2.5 | null | 2011-02-01T12:22:47.013 | 2011-02-01T12:22:47.013 | null | null | 22 | null |
87 | 2 | null | 81 | 13 | null | Weak form market efficiency says that you can't predict prices based on past prices. Or that technical analysis doesn't work. I think that the tests of weak form market efficiency are pretty conclusive and show that the US stock market is weak-form efficient; at least on a a timeline longer than a few minutes.
That's n... | null | CC BY-SA 2.5 | null | 2011-02-01T12:30:31.527 | 2011-02-01T12:30:31.527 | null | null | 106 | null |
88 | 2 | null | 85 | 26 | null | Black-Scholes itself didn't change a lot but we can now adjust it to deal with a lot more complicated factors to price more complicated contracts:
- stochastic volatility (Heston, Gatheral)
- stochastic rates (Hull)
- credit risk
- dividends
Other methods (computing intensive) have also evolved to deal with vario... | null | CC BY-SA 3.0 | null | 2011-02-01T12:36:43.923 | 2011-12-10T20:32:50.160 | 2011-12-10T20:32:50.160 | 35 | 15 | null |
89 | 2 | null | 82 | 13 | null | Some of us see this as a data-driven, empirical problem. And for Programming with Data, you could do a lot worse than picking [R](http://www.r-project.org) which was made for the task.
The [CRAN Task View on Finance](http://cran.r-project.org/web/views/Finance.html) lists a number of relevant packages. For trading stra... | null | CC BY-SA 2.5 | null | 2011-02-01T12:58:59.027 | 2011-02-01T15:25:52.530 | 2011-02-01T15:25:52.530 | 69 | 69 | null |
91 | 2 | null | 85 | 8 | null | There are plenty of other models
You can also add all the exponential Lévy processes with or without time change and also other stochastic volatility models such as SABR.
I must add that there exist a paradigm different of the "risk neutral pricing" (mainly developped by Platen and Heath) called "Benchmark Pricing" an... | null | CC BY-SA 2.5 | null | 2011-02-01T13:27:53.360 | 2011-02-02T11:22:54.870 | 2011-02-02T11:22:54.870 | 92 | 92 | null |
92 | 2 | null | 79 | 9 | null | As far as I know MCMC and also (PMCMC) can be usefull for (bayesian) estimation of parameters of some Hidden process like in the Heston Model case based on observations of the Stock (filtering). But the problem here is that those estimates are not matching those based on calibration of vanilla options of the Risk Neutr... | null | CC BY-SA 3.0 | null | 2011-02-01T13:36:51.413 | 2011-09-09T13:13:58.610 | 2011-09-09T13:13:58.610 | 1355 | 92 | null |
93 | 2 | null | 36 | 5 | null | The term 'rule of thumb' is ambiguous here. Because I don't think there are any rule of thumb, you just need to do the number crunching.
However there are some stable characteristic through time linked to correlation.
For instance it is a common fact that the hierarchy of correlation within different market is relativ... | null | CC BY-SA 2.5 | null | 2011-02-01T14:19:58.550 | 2011-02-01T14:19:58.550 | null | null | 172 | null |
94 | 2 | null | 74 | 17 | null | A few pointers:
- When I looked into this a few years ago, a good solution at the time was LIM's XMIM, which also has an S-Plus/Matlab interface. Whit Armstrong also provided an R package for this, although I don't know how complete it is. This provides both the data and the software for analysis.
- On the very hig... | null | CC BY-SA 2.5 | null | 2011-02-01T14:34:38.097 | 2011-02-01T14:46:42.340 | 2011-02-01T14:46:42.340 | 17 | 17 | null |
95 | 2 | null | 27 | 11 | null | It can be shown using a combination of calendar and butterfly that one can lock now the future variance conditionally to the spot being around some specific level (local vol). So if you bought it and it gets realized higher and the spot is there, you get money. if the spot is not there, you are neutral.
Another way to ... | null | CC BY-SA 4.0 | null | 2011-02-01T14:44:06.687 | 2019-08-27T13:22:09.873 | 2019-08-27T13:22:09.873 | 172 | 172 | null |
96 | 1 | 2045 | null | 24 | 12729 | What is a coherent risk measure, and why do we care? Can you give a simple example of a coherent risk measure as opposed to a non-coherent one, and the problems that a coherent measure addresses in portfolio choice?
| What is a "coherent" risk measure? | CC BY-SA 2.5 | null | 2011-02-01T14:45:48.957 | 2019-07-13T21:20:12.793 | null | null | 114 | [
"risk",
"modern-portfolio-theory",
"coherent-risk-measure"
] |
97 | 2 | null | 82 | 5 | null | We use intensively MetaTrader but it has a lot of problems... we waste a lot of time with turnarounds and dirty tricks to make things work.
Now we're moving some developments to Matlab because it is stable and great for quick prototiping, also you can use free software like Octave, R, Maxima and Sagemath (wich I think ... | null | CC BY-SA 2.5 | null | 2011-02-01T14:51:00.853 | 2011-02-01T14:51:00.853 | null | null | 82 | null |
98 | 2 | null | 37 | 12 | null | You can download data from 32 forex pairs from the Dukascopy's JForex platform, tick by tick since 2003. I think it is very accurate relative to its price (free).
You can download their different formats by starting [here](http://www.dukascopy.com/swiss/english/data_feed/historical/): (no registration required).
| null | CC BY-SA 2.5 | null | 2011-02-01T14:54:38.387 | 2011-02-08T22:51:37.917 | 2011-02-08T22:51:37.917 | 279 | 82 | null |
99 | 2 | null | 66 | 1 | null | "Quantitative Trading", Ernie Chan's book is a good starting point to learn pairs trading.
| null | CC BY-SA 2.5 | null | 2011-02-01T14:59:18.243 | 2011-02-01T14:59:18.243 | null | null | 82 | null |
101 | 2 | null | 82 | 9 | null | I develop strategies for a lot of these different platforms and the one that I feel offers the most is [NinjaTrader](http://www.ninjatrader.com). It uses C# which is a bit slower than MetaTrader, which if I remember correctly uses a variant of C++, in fact in MT5 there should be almost no difference. However, it makes ... | null | CC BY-SA 2.5 | null | 2011-02-01T15:14:32.753 | 2011-02-01T15:14:32.753 | null | null | 173 | null |
103 | 1 | null | null | 49 | 49367 | I've struggled for a long time to understand this - What is this? And how does it affect you?
Yes I mean risk neutral pricing - Wilmott Forums was not clear about that.
| How does the "risk-neutral pricing framework" work? | CC BY-SA 3.0 | null | 2011-02-01T15:29:19.683 | 2022-11-23T21:42:39.093 | 2013-03-06T12:01:33.100 | 35 | 103 | [
"risk",
"risk-management"
] |
104 | 1 | null | null | 3 | 889 | Any recommendations on the best schools and overall education choices for quantitative finance?
| What are the best master programmes for someone interested in a career in quantitative finance? | CC BY-SA 2.5 | null | 2011-02-01T15:59:30.160 | 2011-02-02T05:56:49.757 | null | null | 147 | [
"finance",
"education",
"career"
] |
105 | 2 | null | 104 | 5 | null | Quantnet provided a [rankings of MS in Financial Engineering programs](http://www.quantnet.com/mfe-programs-rankings/), which can be used for reference. More generally, this really depends on what area of quantitative finance that interests you:
If you want to work in developing valuation and pricing models, than one ... | null | CC BY-SA 2.5 | null | 2011-02-01T16:06:23.473 | 2011-02-01T16:23:43.173 | 2011-02-01T16:23:43.173 | 43 | 17 | null |
106 | 2 | null | 104 | 3 | null | It's often hard to give a definite answer to such "what is top programs" questions. When we did the Quantnet MFE ranking in 2009, it was more or less as a guide for people new to this field since it's hard to find information on these MFE programs.
A lot of your choice will come down to personal preferences such as loc... | null | CC BY-SA 2.5 | null | 2011-02-01T16:22:05.473 | 2011-02-01T16:22:05.473 | null | null | 43 | null |
107 | 2 | null | 103 | 39 | null | I assume you mean risk neutral pricing? Think of it this way (beware, oversimplification ahead ;-)
You want to price a derivative on gold, a gold certificate. The product just pays the current price of an ounce in $.
Now, how would you price it? Would you think about your risk preferences? No, you won't, you would jus... | null | CC BY-SA 3.0 | null | 2011-02-01T16:37:43.960 | 2018-04-07T09:44:45.210 | 2018-04-07T09:44:45.210 | 12 | 12 | null |
108 | 2 | null | 96 | 3 | null | Coherent risk measures were created to address the problem that extant risk measures, like VaR, did not: namely that a risk measure should reward diversification.
| null | CC BY-SA 2.5 | null | 2011-02-01T16:57:38.543 | 2011-02-01T16:57:38.543 | null | null | 108 | null |
109 | 2 | null | 37 | 20 | null | [DTN's IQFeed](http://www.iqfeed.net/index.cfm?displayaction=data§ion=services) is really good, if a little expensive. I believe it starts at 80 dollars/month and then you add your exchange fees on top. To get access to the developer API you need to pay 300 dollars for a year's worth of access.
Details:
- Real-Tim... | null | CC BY-SA 2.5 | null | 2011-02-01T17:04:10.337 | 2011-02-01T19:59:24.283 | 2011-02-01T19:59:24.283 | 8 | 173 | null |
110 | 2 | null | 84 | 37 | null | One starts with the Black-Scholes equation
$$\frac{\partial C}{\partial t}+\frac{1}{2}\sigma^2S^2\frac{\partial^2 C}{\partial S^2}+
rS\frac{\partial C}{\partial S}-rC=0,\qquad\qquad\qquad\qquad\qquad(1)$$
supplemented with the terminal and boundary conditions (in the case of a European call)
$$C(S,T)=\max(S-K,0),\qquad... | null | CC BY-SA 3.0 | null | 2011-02-01T18:13:27.523 | 2014-01-27T20:19:10.943 | 2014-01-27T20:19:10.943 | 70 | 70 | null |
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