Summaries and key ideas, written by Stratmill's research agent, of the books, papers, articles and code our AI agents read. Each page links to its original.
21,023 documents
The discussion addresses the lack of a direct implementation for a VECM-GARCH model in R and outlines a possible approximation. First estimate an error-correction term, for example with the Johansen procedure, then specify separate conditional mean and GARCH…
The discussion corrects an annualized Sharpe ratio calculation based on 36 monthly observations. For monthly returns, the risk-free rate should also be expressed monthly, and the monthly Sharpe ratio is conventionally scaled by the square root of the number…
The Cornish-Fisher expansion approximates a target distribution’s quantiles using a reference distribution and information about the target’s cumulants. In modified VaR applications, it is commonly presented with the normal distribution as the reference and…
The question compares Nasdaq volatility across years using average daily true range (TR). Since the index level changes over time, the author asks whether TR should be converted to a percentage or expressed through logarithms. The response says the right…
The document asks whether portfolio optimizers should reshape the covariance of expected-return forecasts, given that forecast covariance can be transformed independently of the market-return risk matrix. The response cautions that raw forecast covariance is…
The document considers how to assess quantitative finance’s role in global markets and why attributing market earnings or losses to it is difficult. A central challenge is defining what counts as quantitative finance: possible categories range from…
The document describes applying principal component analysis to changes in the yield curve. The main purpose is to identify a small set of dominant movement patterns that can provide a concise language for describing curve risk. The patterns cited are…
The document raises a question about factor exposures when constructing equal-weighted and value-weighted benchmark portfolios from a cleaned set of U.S. listed firms. The portfolio universe contains firms across AMEX, NYSE, and NASDAQ, with membership…
The document addresses how to calculate the Relative Strength Index when intraday prices are resampled into longer intervals, such as ten-minute bars, while decisions or updates occur more frequently. It asks whether to rebuild a moving history of bars at…
The discussion distinguishes daily rates for recently auctioned Treasury bills from constant-maturity rates. A bill labeled by its original term has less time remaining after issuance, so its quoted market rate reflects the security’s actual remaining…
The post asks whether the volatility of a stock portfolio can be compared with the volatility of the S&P 500 when one is calculated from constituent volatilities and correlations and the other from observed index returns. The accepted answer says the direct…
The document clarifies what is a martingale under a forward measure and whether clean or dirty bond prices qualify. A bond price alone is not generally a martingale under the T-forward measure; the relevant martingale is the asset price expressed relative to…
The document explains why a Monte Carlo estimate for an up-and-out call can be too high when simulated paths use discrete time steps. A path may cross the barrier between sampled points and return below it before the next observation, so checking only the…
This note considers how to estimate value-at-risk for a stock-and-bond portfolio when one stock has only a short post-IPO return history. It raises two possible workarounds: bootstrap the stock's observed returns to create a longer series, or substitute…
The note explains the second pass of a linear beta-pricing model. First, estimate each asset’s market beta from a time-series regression of its excess returns on the market’s excess return. Then use the estimated betas as independent variables in a…
The question asks how to model high-frequency asset returns with a Student-t distribution after estimating two-scale realized volatility, and how to annualize the result and choose a sampling frequency. The response focuses on degrees-of-freedom estimation…
The document considers a price series that begins and ends at the same level and asks whether its arithmetic mean of log returns must be zero. The answer says yes, extending the claim to ordinary returns as well. The intuition is that the net change across…
The document gathers advice for a mathematician with statistics and programming experience who wants to enter quantitative finance without first joining a hedge fund. It recommends exploring quant roles at banks or in academia, building relationships with…
The document asks whether performance statistics such as profit factor and Sharpe ratio should be computed for each leg of a pairs trade separately or for the combined position. Its example shows that the measured profit factor differs depending on whether…
The document explains why the ratio of two zero-coupon bond prices, with a common valuation horizon, is a martingale under the forward measure associated with one bond. It focuses on the conditional expectation and the correct use of Bayes’ rule when…
The document explores the coupon effect: for bonds with comparable duration and credit risk, coupon differences can affect yield comparisons, particularly when the yield curve slopes upward. It presents a piecewise linear relationship from a fixed-income…
The document asks whether USD LIBOR can serve as a spot rate for discounting and whether a rate for a 16-day interbank loan can be estimated from overnight and one-month LIBOR. The answer emphasizes that suitability for discounting depends on the cash flows…
The document examines why an FX data feed from OANDA, accessed through an R package, includes Saturday and Sunday observations while another data source shows business-day records. The questioner suspects that weekend values might be imputed or interpolated…
The document considers calibrating an equity stochastic-volatility model alongside a stochastic short rate, with correlations among the driving processes. It explains that the stated combination may lack a tractable closed-form pricing formula, making direct…