নলেজ লাইব্রেরি

The document explains how to determine the floating coupon schedule and rate calculation for a QuantLib zero-coupon swap. It states that the index tenor controls the spacing of floating subperiods, and demonstrates inspecting a floating coupon’s dates,…

The document asks how to verify the Euler–Maruyama method’s stated mean-square convergence order numerically. It proposes estimating the root mean square error across simulated paths at each time point, taking the maximum over the grid, and comparing results…

The document sets up a Heston stochastic volatility model for log price and variance, then states an exponential-affine conditional moment-generating function in the terminal log price and variance. It also presents a known expression for an unconditional…

The document addresses whether differentiating an accumulated stochastic integral requires adding an Itō correction term. For an integral whose integrand is the smooth function g of a process S, the differential of the integral is simply its current…

The document explains how to derive a theoretical 1.5-year Treasury spot rate from the price and cash flows of a semiannual coupon bond, using shorter-maturity Treasury bill yields as earlier spot rates. Each bond payment is valued using the spot rate for…

The document asks whether the CBOE SKEW index can serve as the shape parameter of a skew-normal distribution alongside VIX. It explains the index conversion to a skewness measure and notes that the shown skew-normal parameter is constrained to a bounded…

The document addresses how to interpret wealth, cash, and security holdings in the Grossman-Miller market-making model. It explains that total wealth includes both cash and the marked-to-market value of the asset, while trading at a given time must preserve…

The document answers a question about how to define entry and exit signals for a pairs trade. It recommends tracking the moving average and standard deviation of the log price ratio between two stocks, rather than comparing a single period’s return…

This question describes a QuantLib issue that occurs when a pricing workflow changes the evaluation date to an earlier date after calibrating a hazard curve with UpfrontCdsHelper objects. The reported runtime error says the cash settlement date falls before…

The document discusses pricing and risk analysis for derivatives on dividends paid by constituents of equity indices, with particular interest in dividend futures. One response distinguishes futures from options: dividend futures are linked directly to…

The document concerns a Monte Carlo estimate of a European call option price compared with the Black–Scholes analytical value. The implementation uses antithetic normal draws: each simulated stock path is paired with one generated from the opposite shock,…

The document asks whether adjusted closing prices for ETFs or mutual funds account for fund expense ratios, in the context of comparing returns from market data. The response explains that fund expenses are deducted from the fund’s assets over time, reducing…

The document raises a practical issue in a cryptocurrency perpetual-swap pair-trading strategy: a spread estimated by regression on log returns can produce opposite signals in consecutive observations. The author calculates the spread from rolling historical…

The document describes a Liar’s Poker approach that uses the serial numbers on a player’s own bills to inform bids, then asks whether that aggressive escalation is optimal. The answers connect the game to liar’s dice, where players make claims about a hidden…

The document compares using an interest-rate level, a log change, a simple percentage change, or a first difference as a regressor alongside stock returns. One answer recommends beginning with the untransformed rate because it is itself a rate, while another…

The document explains why an implicit finite-difference solution to the Black–Scholes partial differential equation can still produce large pricing errors when the log-price grid is too narrow. The equation is defined over an unbounded domain, while a…

The document raises valuation questions for a privately issued, illiquid Indian corporate bond with an amortizing principal schedule and a high coupon. It asks which components belong in a discount yield, how to update valuation over time, how to estimate a…

The document examines the annualized effective rate for borrowing over a period using backward-looking overnight rates. It presents a formula that compounds each observed annual rate over its applicable day count using simple interest for that accrual…

The document asks how to represent a portfolio’s vega when its original volatility surface has many strike pillars but the target surface retains only three. Vega is described as distributed across the original grid of maturities and strikes, leaving the…

The document presents a curve-building setup intended to help benchmark a spreadsheet model for float-float cross-currency swaps. The question describes importing GBP, USD, and EUR par rates and cross-currency basis quotes, interpolating rates, bootstrapping…

The discussion asks whether portfolio returns can be compared using semi-standard deviation, which focuses on downside variation, instead of ordinary standard deviation. The answer frames the Sharpe ratio more generally as excess return divided by a chosen…

The discussion explains why cointegration test p-values can change sharply when the start and end dates change. If the underlying data-generating process is stable, using the longest available sample can improve a test’s statistical power. If the process…

The discussion considers what market data to collect when building a Bitcoin price feeder for backtesting. Its practical recommendation is to begin with level-one data, such as trades and best bid and offer, and add order-book data only when a specific…

The document considers the square of a geometric Brownian motion and asks how to derive its stochastic differential and quadratic variation. Applying Itô’s lemma to the function that squares the price adds a drift adjustment from the second derivative, while…