Quantitative Finance Weekly Newsletter

Quantitative Finance newsletter

Top new questions this week:

Explicit solution SDE

I have the following SDE: $$dY_{t}=A\left(\frac{W_{t}^{1}}{\sqrt{t}},\frac{Y_{t}}{\sqrt{t}}\right)dW_{t}^{1}+B\left(\frac{W_{t}^{1}}{\sqrt{t}},\frac{Y_{t}}{\sqrt{t}}\right)dW_{t}^{2}$$ where …

stochastic-processes stochastic-calculus sde  
asked by Math Girl 4 votes

Nested volatility

The introduction VIX options makes the concept of "volatility of volatility" a real life concept. The idea of "nested volatility" seems interesting, and I am wondering if there are any academic …

volatility implied-volatility vix  
asked by Sam Li 4 votes
answered by Richard 1 vote

How does this follow from the separating hyperplane theorem?

This is from Pliskas book in mathematical finance. I do not know what was best to write the question so I included the pages from the book. He has not written what form of the separating hyperplane …

arbitrage risk-neutral-measure no-arbitrage-theory convexity  
asked by user119615 4 votes
answered by emcor 1 vote

Modelling currency exchange rates timeseries data across re-denomation dates

I am working with data for an exotic currency, that has been re-denominated a couple of times during the twenty years of data that I have. What is the best way of 'normalising' the data, so that I …

time-series fx  
asked by Homunculus Reticulli 3 votes
answered by nsw 2 votes

Risk Neutral Pricing Necessary Condition

Suppose that I have an option on a single stock expiring at time $T$ and I replicate the payoff of this derivative by investing in the stock market and the money market. So this condition reads $$X(T) …

asked by L'universo 3 votes
answered by emcor 0 votes

How to classify stocks by their volatility?

I would like to hear other possible ways of classifying Stocks by the Volatility of their returns. Assuming that I want to characterize each stock as Low, Medium or High Volatility Stock and assuming …

volatility equities returns  
asked by g_puffo 2 votes
answered by Bram 1 vote

Algorithm to detect the aggressor side of a trade

Most of the exchanges provide aggressor side property of trades (e.g. Tag=5797 AggressorSide on CME) in their raw data. But many data providers do not provide this information via their datafeed …

data market-data automated-trading market-microstructure  
asked by Serg 2 votes
answered by Svisstack 0 votes

Greatest hits from previous weeks:

How do you explain the volatility smile in the Black-Scholes framework?

Does anyone have an explanation for the currently naturally forming volatility smile (and the variations) in the market?

black-scholes implied-volatility  
asked by user5850 11 votes
answered by Brian B 10 votes

What's the difference between volatility and variance?

How do they differ in what they imply about an underlying's (or any variable's) movement?

volatility variance  
asked by Jaydles 17 votes
answered by Dirk Eddelbuettel 15 votes

Can you answer these?

State Space models with Short Time Series

My problem is that I have a state space model that I estimate using the Berndt–Hall–Hall–Hausman (BHHH) algorithm. The state space model is relatively simple in that the hidden part follows a pure …

time-series statistics optimization bootstrap  
asked by Bazman 2 votes

Doubt on risk cost criterion

I want to minimize some kind of risk sensitive cost. But, I am confused what cost criterion should I use. I am aware of only expected exponential utility. I want to know what are the other such …

risk risk-management optimization  
asked by malkhor 1 vote
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