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The explanation describes how an imbalance in client demand can affect swap rates through the inventory of dealers and issuers. A dealer may temporarily absorb opposing trades, much as a market maker buffers buy and sell orders. If client positions offset…
The document compares database options for storing large financial tick datasets and aggregating them into open, high, low, and close bars. It reports an initial test in which InfluxDB was slower than MySQL for one-minute bar creation on a dataset of around…
The document asks how to give one variable more influence when calculating multivariate normal probability densities for observations relative to a specified mean. It describes a four-variable example using an identity covariance matrix, reports density…
The document considers how subtracting a return average or a benchmark return changes beta, correlation, and covariance calculated from daily log returns. Its answer says that subtracting the same average from each series does not alter these measures.…
The document explains why the accrual factor appears when normal swap rate volatility and correlation are mapped into a lognormal volatility parameter in a one-factor CMS model. Define the transformed rate as one plus the accrual factor times the swap rate.…
The document clarifies the meaning of the quanto factor in a discounted valuation expression for a forward payoff converted into another currency. The factor is a fixed exchange rate agreed in advance, rather than an exponential adjustment based on…
The document considers whether to annualize monthly returns before applying CAPM after estimating a stock’s beta from monthly observations against a market index. Its guidance is to choose the frequency at which the model will be used first, then estimate…
The document frames a question about whether VIX is a martingale when the S&P 500 follows a Gaussian diffusion. It defines squared VIX for a fixed tenor as the risk-neutral expectation of average integrated variance over the tenor. It then applies the…
The response offers an intuition for why at-the-money implied volatility can act like an average volatility, particularly when used in quanto option pricing. It describes a result in which squared implied volatility is represented as a time average of…
The document gives examples of negative interest rates and explains how they can appear in forward markets. A negatively sloped yield curve can imply a negative forward rate; the responses mention an inverted US term structure and Treasury bills trading at…
The document derives asset betas relative to a risk parity portfolio from asset volatilities and the correlation matrix. Risk parity is defined here as weights whose products with their respective volatilities are equal, with weights normalized to sum to…
The document addresses whether the Sharpe ratio should use discrete returns or continuously compounded returns. Its answer distinguishes the context: discrete returns are customary for client reporting, while the choice generally has little impact in a…
The document raises a conceptual question about Treasury bond futures basis net of carry and delivery optionality. It asks whether the value of choosing a different deliverable bond—potentially favored by conversion factor differences—would be reflected in…
The document asks how to compare long-only commodity futures roll strategies using historical contracts and ratio back-adjusted price series. The questioner adjusts earlier prices at each roll, then estimates returns from changes in adjusted prices while…
The document asks whether the standard deviation of a time series minus its exponential moving average can be determined from the series’ standard deviation and the EMA smoothing parameter alone. The author observes that the residual spread tends toward the…
The author compares a personal implementation of the Kou double-exponential jump-diffusion model with published European option prices. The code aims to price vanilla calls by combining Poisson-weighted jump contributions, normal distribution terms, and…
The document sets up a perpetual option whose payoff is the larger of two put-like payoffs, one with strike K1 and slope −1 and the other with strike K2 and slope −2. It begins with the standard perpetual-option ordinary differential equation under geometric…
The discussion concerns the unconditional covariance of a multidimensional Ornstein–Uhlenbeck process, expressed as an integral involving the drift matrix and the diffusion covariance. It asks how to evaluate that integral in a dynamic Nelson–Siegel or…
The document asks whether a single constant volatility can approximate prices produced from a curve or surface of Black implied volatilities for products such as floating-rate notes with caps or floors and constant-maturity swaps. It also asks whether a…
The note addresses why a set of SABR-calibrated volatilities may appear to show only a downward skew rather than a volatility smile. It explains that the referenced paper shifts all observed strikes so they become positive before fitting the SABR model, and…
The question compares expected EUR/USD and USD/EUR exchange rates under a two-outcome scenario. It assigns equal probability to EUR/USD ending at 1.25 or 0.8, then observes that each outcome's reciprocal is the corresponding USD/EUR quote. The apparent…
The note explains how the relationship between the up and down factors determines whether a binomial price tree recombines. When the factors are reciprocals, an up move followed by a down move returns to the same value as the reverse sequence. After seven…
The document evaluates a simple intraday rule: buy instruments at the open and sell when price rises by one tick. It explains that the rule is incomplete unless it specifies how to handle positions that never reach the target, including whether to hold them,…
The document compares the adoption of the MOVE and TYVIX interest-rate volatility indices with the popularity of VIX. It distinguishes MOVE, which measures implied yield volatility using rates-market quotes, from TYVIX, which measured Treasury price…