## Top new questions this week:

### Is this application of Ito's lemma correct?

Suppose that $S$ follows a geometric brownian motion $$dS=S(\mu dt+\sigma dB).$$ It is well understood that $$S_{T}=S_{0}exp((\mu-\dfrac{\sigma^{2}}{2})T+\sigma B_{T}).$$ Method 1 (I have no ...

itos-lemma

### What is the fair price of this option?

Without having to use Black-Scholes, how do I price this option using a basic no-arbitrage argument? Question Assume zero interest rate and a stock with current price at \1\$ that pays no dividend. ...

options no-arbitrage-theory

### Please give a step-by-step explanation on how to build a factor model

Factor models such as Fama-French or the other's that are partially summarized here work on the cross-section of asset returns. How are the factors built, how are sensitivities/coefficients ...

regression factor-models fama-french

### How to account for correlation between strategies when they are added linearly?

There are n strategies which are going to be combined linearly. Using a pre-exisiting model I get a set of n weights which will be used to combine the strategies. But the model does not take ...

 answered by Matt Wolf 1 vote

### The use of GARCH

I have a conceptual question that I haven't managed to grasp yet and is most likely a econometrics 101 question by here it goes: If we estimate a GARCH model for a time series, how do we then use ...

garch

### Effect of massive volatility on BS formula

I am experimenting with very high volatility on the standard Black-Scholes formula. I set risk free to zero, time to expiry to 1, volatility to 1 (=100%), and underlying to 1. Then I simulate the ...

black-scholes
 asked by quis est ille 1 vote

### How can I do a dynamic GARCH model using extended Kalman filter in R?

r modeling garch dynamic

## Greatest hits from previous weeks:

### Relationship between Beta and Standard Deviation

I was doing some financial analysis on two firms in the coffee industry. After calculating Beta and Standard Deviation for both firms, I seem to have stumbled on some weird phenomenon. It appears ...

volatility beta standard-deviation

### 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