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by mathdude2018
August 14th, 2020, 5:15 pm
Forum: General Forum
Topic: Correlation of A-B and C-D kind of assets
Replies: 2
Views: 826

Correlation of A-B and C-D kind of assets

This is a real life scenario where in the market I am able to transact only A - B and C - D, even though time series of A, B, C and D are published separately. How do I find the correlation of A - B and C - D. To understand the order of magnitude, A, B, C, D are order of $50 while A - B, and C - D a...
by mathdude2018
May 18th, 2020, 3:35 pm
Forum: General Forum
Topic: Returns and volatility of spread portfolio (pairs trade)
Replies: 1
Views: 2631

Returns and volatility of spread portfolio (pairs trade)

This is a real life trade situation where there is no margin requirements due to bilateral nature of the deal. At all periods in time, I have to two assets A, B in my portfolio of quantity 1 each. Day 1: Stock A is at $100 Stock B is at $101 SpreadAB = $1 Day 2: Stock A is at $110 Stock B is at $101...
by mathdude2018
February 19th, 2020, 11:17 pm
Forum: General Forum
Topic: Proof for square-root-of-time rule
Replies: 4
Views: 3886

Proof for square-root-of-time rule

Is there a proof for square root of time scaling for variance ? i.e. if I have a daily stock price time series, I get the daily standard deviation by taking standard deviation of the price returns. Now to annualize it we multiply by sqrt(365) or sqrt(252). But what is the proof for this? Edit: Is th...
by mathdude2018
February 19th, 2020, 11:04 pm
Forum: General Forum
Topic: Creating volatility term structure
Replies: 2
Views: 3695

Creating volatility term structure

I am trying to understand how to create volatility term structure if I know volatility at certain point in time.  I have only 1 known volatility of 40% exactly 90 days from now. How do I create an equivalent volatility for 120 days, 180 days, 200 days, etc. Is there a more rigorous way than to use s...
by mathdude2018
February 11th, 2020, 9:28 am
Forum: General Forum
Topic: Code for closed form solution for max(S1-S2-K, 0)
Replies: 5
Views: 3091

Code for closed form solution for max(S1-S2-K, 0)

For valuation of max(S1 - S2 - K, 0) when K is much larger than 0; I came across this paper (page 17-18): http://www.cs.toronto.edu/pub/reports/na/ccc/ywchen-18-msc.pdf I tried looking up Matlab or Python codes for this option valuation but I didn't find one. I don't want to recreate the wheel if al...
by mathdude2018
November 13th, 2019, 2:43 pm
Forum: General Forum
Topic: Historical Implied Vol vs Standard Deviation for Monte Carlo Price Simulation
Replies: 1
Views: 2019

Historical Implied Vol vs Standard Deviation for Monte Carlo Price Simulation

I have a daily time series data which looks something like the following: Date , Price , PriceReturn, Premim (strike = 30.13); max(Price - 30.13, 0) 1/1/2019 , 41 , ,10.8 1/2/2019 , 27 , -0.34 , 0 1/3/2019 , 33 , 0.222 , 2.86 1/4/2019 , 24 , -0.27 , 0 1/5/2019 , 28 , 0.166 , 0 1/6/2019 , 11 , -0.60 ...
by mathdude2018
November 7th, 2019, 2:03 pm
Forum: General Forum
Topic: Volatility of B from correlation with another asset A
Replies: 3
Views: 2271

Volatility of B from correlation with another asset A

I have two assets A and B. 

I know the correlation of A and B and I also know the volatility of A. 

Is it possible to generate the volatility of B? If not, why?
by mathdude2018
September 20th, 2018, 3:30 pm
Forum: Politics Forum
Topic: Trump -- the last 100 days
Replies: 4471
Views: 257700

Re: Trump -- the last 100 days

If Prof. Cindy gets her way, from now on anyone can accuse any other person of an assault and ask for FBI investigation without feeling the need to explain to public why public resource like FBI should be used to trace their claims which has had no obvious evidence.  Why stop at high school, why not...
by mathdude2018
September 20th, 2018, 2:45 pm
Forum: Technical Forum
Topic: Value of option on stationary price process
Replies: 4
Views: 1314

Value of option on stationary price process

I am dealing with a price process which is already stationary. Is there a meaning to value of call option for this price process ?

Edit: I have checked the stationarity through ADF test. My question is more on the order of how to value option on stationary process.
by mathdude2018
August 7th, 2018, 9:54 pm
Forum: Student Forum
Topic: Correlated random numbers using cholesky vs multivariate normal random number
Replies: 2
Views: 1583

Correlated random numbers using cholesky vs multivariate normal random number

I am trying to generated 3 different 1 x 500 size vector random correlated series. I do have their covariance matrix.

I am following this example from scipy to generate correlated random numbers.

Why is this process different from using built in module from numpy?
by mathdude2018
March 6th, 2018, 10:18 pm
Forum: Technical Forum
Topic: Correlation among contracts in forwards curve
Replies: 1
Views: 1164

Correlation among contracts in forwards curve

I am trying to understand what is the best way to find correlation between the contracts composing the forward curve. Is it just lining up the front month, front +1 month contracts and so on, calculating their price returns and finding the correlation of returns or is there more to it?
by mathdude2018
January 17th, 2018, 1:56 pm
Forum: Technical Forum
Topic: Portfolio of long and short stocks vs stock-spread
Replies: 5
Views: 1218

Re: Portfolio of long and short stocks vs stock-spread

Empirically your answer sounds good but I am looking for a mathematical reason.
by mathdude2018
January 10th, 2018, 6:04 pm
Forum: Technical Forum
Topic: Portfolio of long and short stocks vs stock-spread
Replies: 5
Views: 1218

Portfolio of long and short stocks vs stock-spread

I have two stocks 1 unit of A (long) and 1 unit of B (short) and I am able to buy and sell them simultaneously and I have daily prices for them also. I create the portfolio on day 1. On day 2, I want to keep the portfolio as invariant as possible by buying/selling SPY. Hence, I can do regression as...
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