Quantitative Finance Weekly Newsletter

Quantitative Finance newsletter

Top new questions this week:

Risk-Neutral Probabilities, Trinomial Model

My professor has many grammatical mistakes and errors in his questions, so apologies ahead of time. I am just trying to understand what he wants for this question, In trinomial model, let $S_0 = 1$, ...

options finance mathematics finance-mathematics  
asked by Morgan Weiss 3 votes
answered by Mark Joshi 4 votes

Is there an error in this problem on pricing an asset using the true probability of an up move?

I'm self-studying for an actuarial exam and I encountered the following problem: The true probability of an up move, $p$, must satisfy: $$p = \frac{e^{{(\alpha - \delta})h} - d}{u - d},$$ where ...

binomial-tree self-study  
asked by user2521987 3 votes
answered by Neeraj 1 vote

What is smart beta, alternative index, factor investing?

What is smart beta, alternative index, factor investing? Are they basically the same thing? Construct a benchmark index using schema other than market cap?

quant-trading-strategies portfolio asset-allocation tactical-asset-allocation  
asked by JOHN 3 votes
answered by noob2 1 vote

Dollar-Neutral Strategy

Here is an excerpt from E. Chan's book Quantitative Trading, However, if the strategy is a long-short dollar-neutral strategy (i.e., the portfolio holds long and short positions with equal ...

asked by user616 3 votes
answered by Neeraj 3 votes

Ito Formula for Stochastic Integral

Suppose I have $$dS_t = \mu(S_t,t) dt + \sigma(S_t,t)dW_t$$ What would be the process satisfying the following process of $y_t$? $$y_t = \int_0^t S_u du + \int_0^t S_u dW_u$$ I'm not quite sure ...

asked by Kenneth Chen 3 votes
answered by Olaf 7 votes

Information on Weather Derivatives

I am looking for relevant information on the organization of the Weather Derivatives market. How is it organized? How information is shared? Where can we find historical database? I am aware of the ...

data market-data historical-data derivatives  
asked by mic 3 votes
answered by andrew.paul.acosta 2 votes

Equivalency of FX forwards and FX fixed for fixed swaps? Are they still the same under multiple curves environment?

I am encountering two approaches for valuation of FX swaps (fixed for fixed, e.g. fixed USD payments for fixed EUR payments) which seem to result into different values although in theory they should ...

fx derivatives swaps bloomberg  
asked by PBD10017 3 votes
answered by rupweb 0 votes

Greatest hits from previous weeks:

What's the intuition behind DTS(duration times spread) in fixed income?

I am having some difficulty grasping the concept of using DTS to measure credit risk. In the equity world, one typical measure of risk is beta, which is quite well-defined as the exposure to a common ...

fixed-income spread duration  
asked by ezbentley 2 votes
answered by Richard 1 vote

How to calculate unlevered beta

I have derived a firm's cost of equity using the WACC formula (see here), which means that the cost of equity has factored in the firms' debt (i.e. levered beta) and now I need to calculate the firm's ...

beta capm  
asked by Ben 2 votes
answered by jeff m 1 vote

Can you answer these?

Libor Market Model Calibration

Currently I am doing a research on the plain vanilla multi-curve framework Libor Market Model meaning that no stochastic volatility is involved. I had the idea to calibrate to the swaption market. In ...

volatility interest-rates monte-carlo calibration swaption  
asked by Tinkerbell 1 vote

Are there alternatives to the Box-Tiao decomposition in identifying mean reverting portfolios?

As documented in this paper, Box-Tiao decomposition (a way to decompose multiple time series into components with different speeds of mean reversion) can be used to identify mean reverting portfolios. ...

time-series arbitrage mean-reversion  
asked by Slow Learner 1 vote

General Equation for price optimisation where cost is constant

I'm currently working on the Quantitative Finance course offered on Coursera by Wharton and in one example it states that "through calculus, one can obtain the optimal value of price when ...

asked by user61871 1 vote
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