Quantitative Finance Weekly Newsletter

Quantitative Finance newsletter

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 ...

asked by Antonius Gavin 5 votes
answered by Abramo 1 vote

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  
asked by Antonius Gavin 5 votes
answered by q.t.f. 2 votes

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  
asked by Richard 4 votes

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 ...

statistics quant-trading-strategies correlation  
asked by web_ninja 2 votes
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 ...

asked by user3934760 2 votes
answered by user2142 1 vote

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 ...

asked by quis est ille 1 vote
answered by Mark Joshi 0 votes

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

Today I was reading an article quoted here, in this article is proposed an adaptive (dynamic) Garch model. How can I do it in R? The use of extended Kalman filter or particle filter is indifferent. I ...

r modeling garch dynamic  
asked by Mik_79 1 vote

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  
asked by James 2 votes
answered by vonjd 1 vote

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 5 votes
answered by Jase 7 votes

Can you answer this?

Charting order depth over time periods

I do a lot of analysis on order flow, tape reading, as it gives insight into what market participants want, or may be willing to do. In comparison, price charts show what happened, and technical ...

market-data liquidity  
asked by CQM 1 vote
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