I am generating 500 points in Monte Carlo distribution based on some empirical/historical behavior. However, the mean is different from what we see in the forward market. We need to readjust the mean of this distribution to that displayed by forward market. This is a non parametric distribution i....
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...
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...
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...
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...
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...
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...
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?
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...