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December 13th, 2019, 2:31 pm
Forum: Off Topic
Topic: Physics question - why are we so sure g is constant?
Replies: 22
Views: 1212

Physics question - why are we so sure g is constant?

Why are we so certain that the gravitational constant is actually constant in both time and space? Obviously it must be very close to constant in recent times and throughout our solar system. But our lifespans are tiny on the scale of time, and our solar system is tiny in the universe.
November 30th, 2019, 4:29 pm
Forum: Numerical Methods Forum
Topic: Filling gaps in correlated bivariate data
Replies: 4
Views: 6190

Re: Filling gaps in correlated bivariate data

Thank you all. I've played with this quite a bit and I think I'll go with Alan's solution of regressed returns adjusted with a linear drift.
November 28th, 2019, 10:32 am
Topic: Cleanest expression of a single currency?
Replies: 5
Views: 3949

Re: Cleanest expression of a single currency?

I've also seen people try to do this using multiplication, eg AUD/USD * AUD/JPY * ..., and also a linear 1.5 * AUD/USD + 1.0 * AUD/JPY + ... etc.
November 28th, 2019, 10:29 am
Topic: Cleanest expression of a single currency?
Replies: 5
Views: 3949

Re: Cleanest expression of a single currency?

Perhaps a PCA of pairs (AUD/USD, AUD/JPY, AUD/EUR, AUD/GBP etc). We could weight them by the importance before performing the PCA. Thoughts?
November 28th, 2019, 10:27 am
Topic: Cleanest expression of a single currency?
Replies: 5
Views: 3949

Cleanest expression of a single currency?

Currencies are expressed as pairs, eg AUD/USD. However if I wanted to express the value of the (somewhat nonsensical) AUD alone (or changes in its value), how might we attempt/approximate this? I realise that this is an intractable problem and also is very much based on what objective function you s...
October 7th, 2019, 10:16 am
Forum: Numerical Methods Forum
Topic: How to determine basket of stocks in pair trading.
Replies: 2
Views: 4999

Re: How to determine basket of stocks in pair trading.

Your easiest way is to take a large universe of stocks. Measure and rank correlations over a long timeframe (eg weekly). Measure and rank correlations over short timeframe (eg hourly) too. Subtract the two ranks. You will find the most cointegrated pairs will have good price correlation over the lon...
October 7th, 2019, 10:07 am
Forum: Numerical Methods Forum
Topic: Filling gaps in correlated bivariate data
Replies: 4
Views: 6190

Filling gaps in correlated bivariate data

Consider the data set below. The blue is the SP500 futures trading 24h/day. The other is the VIX which I only have values for 7h/day. Obviously both are somewhat inversely correlated. What method would you recommend for filling the hidden/missing orange VIX points with 'most likely' values, given th...
February 24th, 2019, 4:19 pm
Topic: VIX to Option Pricing Heuristics?
Replies: 5
Views: 4250

Re: VIX to Option Pricing Heuristics?

Thank you Alan. That is really helpful.
February 22nd, 2019, 4:57 pm
Topic: VIX to Option Pricing Heuristics?
Replies: 5
Views: 4250

Re: VIX to Option Pricing Heuristics?

Thank you. That is a useful heuristic. As I check, the VIX is 14.1% and 30d ATM options are at 11.3%. 30d OOM strikes with deltas (-)25% (puts) and (+)25% (calls) are at 14% and 10%. So, for the ATM, that sounds close. As the VIX moves up and down, do you find that the shape of the 30d smirk tends t...
February 21st, 2019, 8:39 pm
Topic: VIX to Option Pricing Heuristics?
Replies: 5
Views: 4250

VIX to Option Pricing Heuristics?

I hope that this question isn't to simplistic. I am (roughly) familiar with the process for how the VIX is calculated. It is taking many ES OOM options prices around 30 days in the future and using this surface to estimate the implied volatility of an OOM options expiring in 30 days. 1) But how far ...
October 1st, 2018, 8:44 am
Topic: Pot is hot: Tilray (TLRY) borrows edition
Replies: 1
Views: 851

Re: Pot is hot: Tilray (TLRY) borrows edition

A great idea for a thread. Two thoughts - (1) Will cannabis be as expensive/sought after if it is legalised?, (2) Is it really the wonder drug that people are hoping for?
September 8th, 2018, 11:59 am
Topic: Popular Methods for Non-ARCH Forecasting of Volatility and Option Prices?
Replies: 3
Views: 1071

Re: Popular Methods for Non-ARCH Forecasting of Volatility and Option Prices?

Thank you. There is very important information which isn't included in the historical price, such as upcoming Non-Farm Payrolls, Rate Decisions, Dividend Payments and Company Reporting. From that perspective, a model based on past data will always be missing a trick.

I'll look up the book.
September 7th, 2018, 1:32 pm
Topic: Popular Methods for Non-ARCH Forecasting of Volatility and Option Prices?
Replies: 3
Views: 1071

Popular Methods for Non-ARCH Forecasting of Volatility and Option Prices?

In the CQF, we learned about GARCH etc. I assume this is somewhat 'entry level' and that there are a wide variety of other mechanisms for pricing volatility and options based (ONLY) on historical price data. I have been doing quite a bit of investigation on using machine learning to price puts and c...
September 1st, 2018, 6:37 pm
Forum: General Forum
Topic: The N() in Black Scholes Option Pricing
Replies: 27
Views: 3446

Re: The N() in Black Scholes Option Pricing

Ah! I hadn't spotted that :) I've been reading this paper recently which suggests a similar framework. Revisited Multi-moment Approximate Option Pricing Models: A General Comparison (Part 1) I also found this short paper useful for thinking around the BS. An Intuitive Understanding of the Black-Scho...
September 1st, 2018, 1:44 pm
Forum: General Forum
Topic: The N() in Black Scholes Option Pricing
Replies: 27
Views: 3446

Re: The N() in Black Scholes Option Pricing

Thanks Alan. As a quick question, you mentioned that it wouldn't work when the log returns were uniformly distributed between -10% and +10%. What is it about this distribution (with two very obvious discontinuities) that won't work but others, eg Gaussian, will? Surely the UD satisfies both (**) and...
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