Quantitative Finance Weekly Newsletter

Quantitative Finance newsletter

Top new questions this week:

Does Modern Portfolio Theory align with EMH?

I came to the conclusion that in literature Markowitz' Portfolio Theory is believed to be compliant with the Efficient Market Hypothesis. The weakest form states that the current price fully …

modern-portfolio-theory markowitz emh  
asked by Karol Przybylak 7 votes
answered by Bob Jansen 4 votes

Worked examples of applying Ito's lemma

In most textbooks Ito's lemma is derived (on different levels of technicality depending on the intended audience) and then only the classic examples of Geometric Brownian motion and the Black-Scholes …

stochastic-calculus reference-request itos-lemma  
asked by vonjd 5 votes
answered by emcor 5 votes

Some clarifications on eigenvectors and eigenvalues from PCA

Could somebody tell me whether suggestions in bold true or not? Q # 1: http://www.math.nyu.edu/faculty/avellane/AvellanedaLeeStatArb071108.pdf Chapter 2.2 Interpretation of the …

pca eigenportfolio  
asked by Art 4 votes

How to find optimal look back in quant trading models

I'm in the process of building a quantitative trading model, I want to improve on the way in which I decide upon a look back length for the indicators. I understand the different pros/cons for very …

quant-trading-strategies backtesting models  
asked by user3583437 3 votes
answered by vonjd 5 votes

What happens when bond price is less than the recovery rate

I am simulating various price path of bonds, and one issue that came up is the recovery rate. When a bond defaults, the amount you get back recovery rate * principle. This creates a problem if the …

asked by Sam Li 3 votes
answered by experquisite 4 votes

How to price a Swing Option?

I'm working in the commodity market and I've to price Swing Options with MATLAB, preferably with finite element. Has anyone already priced these kind of derivatives? I'm thinking about using the …

asked by alberto 3 votes
answered by Juan Ignacio Gil 0 votes

How to deal with extreme cases in normal random numbers generation?

In order to generate normal random numbers, one usually generates random numbers following a uniform distribution $Z \sim \mathcal{U}(0,1)$ and then applies the reverse CDF function on them …

asked by SRKX 3 votes
answered by emcor 1 vote

Greatest hits from previous weeks:

how to derive yield curve from interest rate swap?

According to some textbooks, to derive the yield curve, quote overnight to 1 week: rates from interbank money market deposit, 1 month to 1 year: LIBOR; 1 year to 7 years: Interest Rate Swap; 7 …

interest-rates swaps yield-curve  
asked by athos 8 votes
answered by William S. Wong 0 votes

How to fit ARMA+GARCH Model In R?

I am currently working on ARMA+GARCH model using R. I am looking out for example which explain step by step explanation for fitting this model in R. I have time series which is stationary and I am …

time-series statistics r  
asked by Add 4 votes
answered by Jase 6 votes

Can you answer these?

Comparison of multicurve calibration methods

It seems that there are mayor softwares around offering a multicurve framework based on bootstrap. I find this puzzling nowadays, given the distinct advantages of best-fit optimization methods and …

yield-curve multicurve ois-discounting  
asked by Quartz 2 votes

Questions related to the banking crisis during the European sovereign debt crisis

I am studying the European Sovereign Debt crisis and I have the following questions which I am struggling to find examples for: 1) I have heard that during the sovereign debt crisis, European …

economics banks  
asked by user11601 1 vote
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