Tudástár

The discussion explains three common criticisms of the Heston stochastic volatility model: limited flexibility when fitting observed option volatility surfaces, unusual behavior in its forward volatility skews, and limited usefulness for some exotic pricing…

The document asks whether monthly factor returns should be aggregated into overlapping quarterly, semiannual, or annual returns before regressing them on lagged market- and funding-liquidity variables. The proposed motivation is that monthly observations may…

The document describes a long–short factor backtest that ranks assets into top and bottom quintiles. The signal has positive performance at monthly, quarterly, and annual rebalancing frequencies, with returns improving as rebalancing becomes less frequent.…

The document raises a fixed-income valuation question: whether CDS spreads quoted in different currencies can be subtracted to adjust a bond’s credit margin for a change in issuer country. The example compares five-year U.S. and Polish CDS quotes, then adds…

The document derives the logarithmic dynamics of a geometric Brownian asset and explains how to change probability measure so its drift becomes the risk-free rate. Applying Itô’s lemma to the asset’s stochastic differential equation gives the log return a…

The document distinguishes common uses of excess return: an asset's return minus the risk-free rate, and one asset's return minus another benchmark's return, such as the market. Both are differences between returns and can be interpreted as the payoff on a…

The document shows how a narrow call spread approximates a cash-or-nothing digital option: subtract the call price at a slightly higher strike from the call price at the target strike, then divide by the strike interval. In the limit, this becomes the…

The document explains what trading servers colocated at an exchange can receive and how they may subscribe to those feeds. Exchange data is commonly distributed over fibre using multicast, with subscriptions selectable by feed group or partition; TCP feeds…

Brownian motion with drift, X_t = μt + σW_t, is normally distributed with mean μt and variance σ²t. Exponentiating a normally distributed variable gives a lognormal distribution, so the stated exponential process has lognormal levels; its logarithm has mean…

The document asks whether American option prices must increase with volatility whenever European option prices do, and seeks intuition for proving the result in more general models. The answer states that a standard American option under Black–Scholes is…

The document explains how the standard maturity for a five-year single-name credit default swap is determined under the post-2015 convention. Although a simple five-year anniversary calculation might suggest a September maturity for a trade made in early…

The document explains why a zero curve built from continuous-rate data can fail when its dates are mapped to times using an Actual/Actual day-count convention. Curve interpolation requires distinct times, but the convention may assign the same year fraction…

The document investigates why a calculation for the delta of a foreign-exchange down-and-out call appears to produce an implausible negative value when the spot, strike, and barrier are entered on a larger numerical scale. The accepted answer approaches the…

The document considers how to reduce the worst losses of a bullish call spread by adding a bearish option position in a later expiry. It discusses balancing hedge size, the hedge’s cost, and the different rates of time decay across expiries. The proposed…

The document explains how to derive a real interest rate from a money market rate and consumer price inflation, in the context of a study modeling the probability of stock market crises. The question arises because a cited paper describes its control…

The document asks how to estimate the price impact of a market buy order that is larger than the displayed ask size. Its example gives an ask price and quantity, then considers an order that would consume multiple levels of the order book. It seeks a general…

Rehypothecation occurs when a bank or broker reuses collateral pledged by a client to support its own borrowing or trading. The explanation describes how this practice can create a chain of claims: successive reuse makes the total collateral supporting the…

The discussion addresses why a request for index history beginning in 1960 returned data only from 2010 onward. Its practical recommendation is to locate a source that covers the missing period, preserve that historical segment locally, and periodically…

Commodity Asian swaps settle against an average reference price over an averaging period rather than a single final observation. The discussion describes a typical payoff as the period’s notional multiplied by the difference between a fixed strike and the…

The document contrasts last-look foreign exchange market making with firm, no-last-look quoting. With last look, the market maker streams indicative prices and receives incoming orders that it may reject. Under no-last-look arrangements, the venue streams…

The document explains why calling the amount or rate method on a QuantLib IborCoupon can fail with a “pricer not set” error, even when the relevant Euribor fixing has already been supplied. In the implementation described, coupon rate calculation delegates…

The document explains why a higher risk-free rate can raise the value of a call on a non-dividend-paying stock, despite also increasing the discount applied to its future payoff. In the Black–Scholes framework, the same rate affects both the stock’s assumed…

The document presents a European call pricing comparison under the Heston stochastic volatility model. It gives a characteristic-function integral for the closed-form price and a Milstein-style discretization for simulating variance and log spot, then…

The document illustrates a convexity adjustment by comparing two ways to price cash flows when an interest rate can take one of two values. One calculation discounts the amount using the average of the rates, while the other averages the two prices obtained…