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by quantiquequant
March 14th, 2013, 2:17 pm
Forum: Student Forum
Topic: A trader asked me if he can use historical data for parameter estimation in Q measure
Replies: 3
Views: 8559

A trader asked me if he can use historical data for parameter estimation in Q measure

QuoteOriginally posted by: ZhuLiAnWhat exactly do you want to estimate in term of model, product?I thinks he want to estimate r0, mu, sigma the pricing diffusion parameters (under Q) using the time serie of short rate in the real world P.
by quantiquequant
March 14th, 2013, 11:56 am
Forum: Student Forum
Topic: A trader asked me if he can use historical data for parameter estimation in Q measure
Replies: 3
Views: 8559

A trader asked me if he can use historical data for parameter estimation in Q measure

<t>Hi,The rates time serie is the real world (P measure) time serie and has to be used for real world applications: forecasting, stress or back-testing...The observable options prices, that depend on an implicit Q world time series (people who trade derivatives have their own vision for the rates fu...
by quantiquequant
March 8th, 2013, 11:39 am
Forum: Student Forum
Topic: Why shop loss
Replies: 12
Views: 9385

Why shop loss

<t>QuoteOriginally posted by: AlanQuoteOriginally posted by: wh408Optional stoping theorem suggests that adding a stopping rule to our portfolio won't change the expectation. Any explanation from practical, mathematical or behavioural finance perspectives?ThanksI know you're thinking of short-term r...
by quantiquequant
March 7th, 2013, 1:41 pm
Forum: Trading Forum
Topic: How can you get exposition to the volatility in a linear setting ?
Replies: 4
Views: 9446

How can you get exposition to the volatility in a linear setting ?

<t>QuoteOriginally posted by: outrunIt does hold when the volatility of the two matures is different. EgYou could have high vol, vega, gamma and theta for the 1m series, and low vol for the 3m series.Yes, I made a couple of division mistakes But, some one give me a hint on forward start options that...
by quantiquequant
March 7th, 2013, 12:05 pm
Forum: Student Forum
Topic: Why shop loss
Replies: 12
Views: 9385

Why shop loss

<t>QuoteOriginally posted by: wh408Optional stoping theorem suggests that adding a stopping rule to our portfolio won't change the expectation. Any explanation from practical, mathematical or behavioural finance perspectives?ThanksIf you find a stopping rule (based on the past and present realisatio...
by quantiquequant
February 28th, 2013, 4:25 pm
Forum: Technical Forum
Topic: Returns swap fair price ?
Replies: 6
Views: 9127

Returns swap fair price ?

<t>QuoteOriginally posted by: daveangelQuoteOriginally posted by: quantiquequantI think the hedging argument works well in theory but in practice for large volume transaction is it practical ?What I mean for example if you take a country that have a huge exposure to some industry, Saudi Arabia for p...
by quantiquequant
February 28th, 2013, 11:54 am
Forum: Trading Forum
Topic: How can you get exposition to the volatility in a linear setting ?
Replies: 4
Views: 9446

How can you get exposition to the volatility in a linear setting ?

Hi,Can you build a position that has zero Gamma (and also Speed) but has strictly positive Vega. I remember the question of both on opposite signs using two maturities but when the gamma is zero the reasoning does not hold and hence my question.Thanks,
by quantiquequant
February 28th, 2013, 11:47 am
Forum: Technical Forum
Topic: integrated CIR process
Replies: 9
Views: 11568

integrated CIR process

<t>QuoteOriginally posted by: CroackingToadThanks quantiquequant,Broadie Kaya approach is very expensive from a computational point of view... is there out something less heavy (i.e., something not requiring integration of modified Bessel functions)?Yes I have already implement it well is is only a ...
by quantiquequant
February 28th, 2013, 11:34 am
Forum: Student Forum
Topic: discount rate used for option pricing if expected return miu used for underlying
Replies: 5
Views: 9200

discount rate used for option pricing if expected return miu used for underlying

<t>QuoteOriginally posted by: mengchaoThanks for the answer.Q1. Let me ask more directly. In the real world, I may have a stock price dynamics follows ST = S0*exp[(miu-0.5*vol^2)*T + vol*T^0.5*random. If I really simulate miu different from r, then I will have call_price = discount*max(ST-strike,0)....
by quantiquequant
February 28th, 2013, 11:20 am
Forum: Student Forum
Topic: E(X_n)->E(X) implies E(YX_n)->E(YX)
Replies: 5
Views: 10848

E(X_n)->E(X) implies E(YX_n)->E(YX)

<t>QuoteOriginally posted by: fmfreshmanThanks for your answer! It seems to be correct in many continous cases, but I still suspect it is not right in generalWell if you are interested in an application to finance second moment exist for sure ! or how the heck you can talk about volatility (Taleb ha...
by quantiquequant
February 28th, 2013, 11:15 am
Forum: Technical Forum
Topic: Returns swap fair price ?
Replies: 6
Views: 9127

Returns swap fair price ?

<t>I think the hedging argument works well in theory but in practice for large volume transaction is it practical ?What I mean for example if you take a country that have a huge exposure to some industry, Saudi Arabia for petroleum. Their GDP increase can be decomposed into two part the global world...
by quantiquequant
February 23rd, 2013, 11:29 am
Forum: Numerical Methods Forum
Topic: Heston model, convergent or not?
Replies: 22
Views: 13051

Heston model, convergent or not?

<r>QuoteOriginally posted by: fmfreshmanQuoteOriginally posted by: CuchulainnQuoteWilmott forum is a small world, isn't it? haha, I finished my master in Netherlands. ^_^Wilmott is a hotbed of Dutch posters!Well, That is very nice. I used to presume most of them were from USA or UK. ^_^I would like ...
by quantiquequant
February 23rd, 2013, 10:46 am
Forum: Technical Forum
Topic: Returns swap fair price ?
Replies: 6
Views: 9127

Returns swap fair price ?

Hi,For a given nominal amount two part exchange two returns (for example Nasdaq returns for S&P returns). Why the value of this contract is zero ? or is there other considerations to take in account ?
by quantiquequant
February 23rd, 2013, 10:29 am
Forum: Student Forum
Topic: discount rate used for option pricing if expected return miu used for underlying
Replies: 5
Views: 9200

discount rate used for option pricing if expected return miu used for underlying

<r>Hi,If you carry Monte-Carlo to price as in Boyle you will diffuse the spot St using r and discount the payoff by r and using the risk-neutral probability.If you try to calculate the price by delta-hedging simulations (find the initial cost such that the expectation of the final P&L_T = Discou...
by quantiquequant
February 22nd, 2013, 5:28 pm
Forum: Student Forum
Topic: E(X_n)->E(X) implies E(YX_n)->E(YX)
Replies: 5
Views: 10848

E(X_n)->E(X) implies E(YX_n)->E(YX)

Hi,If you have L2 convergence it is direct application of Cauchy-Swartz inequality. In the general case I am thinking about an example.