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A hedge curve template (HCT) specifies the market instruments and curve-building method used to create scenarios for measuring an instrument’s risk. Its design determines which rate changes the risk report can show and how closely those scenarios resemble…
The document surveys software and approaches for examining limit order books over time. The requested capabilities include displaying bids and asks, switching between individual orders and aggregated price levels, tracking changes through time, replaying…
The document discusses constructing a model-free implied-volatility measure from a range of traded call and put prices. The described procedure first builds an implied-volatility skew by interpolating and extrapolating market observations with a cubic…
The document addresses whether a trader keeps queue position after increasing the size of a resting limit order. Its example starts with a smaller order at the best bid and considers submitting an update when the desired size grows. The accepted response…
The document asks how to price a floorlet whose payoff depends on a linearly compounded rate derived from a bond price. It specifies a risk-neutral model in which the short rate and a second state variable, sigma, both evolve stochastically. The proposed…
The document explains how to obtain swap rates along simulated paths in a one-factor Hull–White short-rate model. The model describes the short-rate dynamics, and its analytical zero-coupon bond pricing formula relates each bond price to the current short…
The document considers whether value-at-risk or conditional value-at-risk (also called expected shortfall) is better suited to portfolio construction, focusing on a long/short equity portfolio without options. It summarizes a debate over risk measure…
The document addresses how to calculate fair value for a futures contract on a two-stock index when the component stocks pay dividends before expiry. The central issue is that the index level is expressed in index points, so dividends stated as currency…
The document explores how a fund of funds with many hedge funds might monitor risk more frequently than its managers’ monthly reporting allows. It compares portfolio-level monitoring with fund-by-fund analysis, which can better expose strategy-specific risks…
The answer adapts the Heston stochastic volatility model to a forward by defining a zero-start log-return process whose exponential is a martingale under the pricing measure. It gives the characteristic function for that process, using the numerically stable…
The post asks whether expected utility portfolio optimization can be formulated when market models permit arbitrage. It references work on pricing under a weakened no-arbitrage assumption, while noting that the cited approach does not resolve utility…
The document says short-horizon curve construction depends on the market and intended use. For a USD swap curve, builders can incorporate actively traded instruments with different maturities and frequencies, including monthly fed funds futures, short-dated…
The document describes a way to turn option open interest and gamma estimates into an aggregate gamma exposure profile. Rather than summing current dollar gamma by strike only at the prevailing index level, the proposed approach recalculates option gamma…
The document distinguishes the sign of a diffusion coefficient in a stochastic differential equation from the standard deviation of modeled returns. A negative coefficient can be represented by reversing the sign of the Brownian motion, which remains a…
The document explains how to choose weights for two risky assets when their returns are highly correlated and their volatilities differ. It gives the variance of a weighted return portfolio in terms of the asset weights, individual variances, and cross-asset…
This discussion asks whether adding many calls and puts causes portfolio delta to cancel out, and whether the central limit theorem can describe the result. One response stresses that the answer depends on how positions are acquired and how market moves…
This exchange considers whether European-style compound calls and puts retain put–call parity when the underlying is an American option. The central lesson is that the answer depends on the contract’s definition and whether the underlying option can…
This exchange recommends books for a reader seeking an accessible introduction to credit risk management in banking. The question highlights exposure at default, probability of default, loss given default, risk-weighted assets, and regulatory frameworks as…
This overview lists stochastic processes used in quantitative finance and gives their representative stochastic differential equations. Brownian motion provides the random driver; geometric Brownian motion models an asset with proportional drift and constant…
The document describes an implementation problem in pricing European calls with the inverse Gaussian component GARCH model of Babaoglu, Christoffersen, Heston, and Jacobs. The model has an exponentially affine moment generating function, allowing a…
The document explains how to interpret a short-term fixed-for-floating SOFR swap quote and reproduce its cash flows. The quoted ticker represents a swap with specified settlement and maturity dates; generic instrument descriptions alone do not identify those…
The document asks how to interpret the local volatility shapes implied by a stochastic-local volatility specification related to SABR. In this setup, the forward rate is scaled by a power of its level, with the exponent controlling the backbone; the author…
The document asks which value from an OHLC candle should be used to calculate a simple moving average: the open, close, midpoint, or another price. Its answer is that the choice depends on the intended calculation, while closing prices are the common…
The document asks whether a stock price can imply future volatility in the same way an option price does. The response explains that structural credit models can connect equity value to volatility because equity behaves like a claim on firm assets while debt…