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The document discusses apparent weekday swings in the P&L of a short eurozone bond position, where settlement occurs after a lag. Its response explains the effect through settlement-date valuation: a short bond may appear to have a larger liability when its…

The document asks whether sovereign yield-to-maturity observations can be fitted directly to a yield curve, such as a Nelson–Siegel curve, using QuantLib or another open-source library. The response cautions that yield observations alone can produce…

This note compares sensitivity methods for discrete Asian options when the underlying follows geometric Brownian motion. A geometric-average Asian option has an analytic price under Black–Scholes assumptions, allowing Greeks to be obtained from the…

This short exchange clarifies the payoff notation for a forward contract on a zero-coupon bond. Although the forward price quoted before delivery can vary over time as market conditions and remaining time change, the delivery price agreed when the contract…

This discussion asks how to estimate the exercise probability of the embedded American call in a convertible bond using QuantLib, and distinguishes that probability from delta. It describes approximating the option’s sensitivity to strike, also called dual…

This note explains why the Relative Strength Index produced by R’s TTR package may differ from Bloomberg’s. It contrasts a rolling simple average of gains and losses over the selected period with a recursively updated average: after the initial period, the…

The document addresses whether replacing a statistically significant linear regression with a Kalman filter will necessarily improve predictions. Its central answer is conditional: performance depends on the data and on how the filter is calibrated. A Kalman…

The document concerns technical and practical pricing of insurance-linked securities, especially catastrophe bonds. Its answer characterizes many underlying contracts as excess-of-loss insurance covers, suggesting that actuarial literature on those contracts…

The document frames a statistical problem: testing whether the average returns of stock decile portfolios differ from model-predicted returns. The data are monthly portfolio returns spanning a long historical period, and the target is an annual return…

The document compares linear interpolation of quoted rates with constant-forward-rate interpolation when constructing a rate curve for pricing American and European options. It highlights that linear interpolation can create discontinuities in instantaneous…

The document compares row-oriented and column-oriented storage for financial time series, focusing on tick trades and OHLCV bars. One answer favors conventional relational databases for a single-symbol-per-table workload with frequent writes, citing the…

The document considers how to estimate an implied volatility surface for an asset that has spot data but no options market. It outlines several practical approaches: estimate realized volatility with a model such as GARCH and add a chosen risk premium; scale…

The document addresses why a bank would sell an option when a favorable move in the underlying could make the payout larger than the premium collected. The example assumes a call premium of five dollars and a later stock price of one hundred ten dollars, but…

The document asks whether changing probability measures for a continuous diffusion can alter only its drift, or whether the diffusion coefficient can change as well. The answers explain that a measure change reweights the probabilities of trajectories while…

The document considers how to decompose the forward-looking yield of an index of agency fixed-rate residential mortgage-backed securities. The proposed framework adds a duration-matched Treasury yield, the option-adjusted spread, and an adjustment intended…

The document asks whether bid and ask quotes, or an average spread, can be reconstructed when only transaction prices are available. One answer cautions that trades alone do not contain enough information to recover the quotes directly. Closely spaced…

The question seeks an integral-based route to barrier option prices, motivated by the reflection principle and a guessed reflected probability density. The answer points to a derivation for Black–Scholes barrier options that uses reflection together with…

The discussion distinguishes Macaulay duration’s cash-flow-weighted timing calculation from the misleading idea that it measures how long it takes a bond’s cash flows to repay its price. For a perpetual coupon bond under a flat yield, the derivation shows…

The document asks how to simulate paths of two mean-reverting processes from their stochastic integral forms and conditional distributions. Its answer recommends discrete-time SDE approximation and gives the Euler–Maruyama update: each new value combines the…

The document clarifies that negative variance values can arise from numerical discretization even though the continuous-time Heston variance process does not become negative. Flooring values, taking absolute values, or otherwise altering simulated variance…

The document compares local-volatility and stochastic-volatility valuations for a double no-touch option that pays a fixed amount if spot remains between two barriers until maturity. It assumes both models are calibrated to the same implied volatility…

The document explains why a floating-rate swap leg can be valued from the next payment and the discount curve without forecasting every future rate. Under a single curve where discounting uses the same benchmark as the floating coupons, a sequence of bond…

The document explains why a GARCH fit that reports failure to converge should be treated cautiously. Numerical estimation methods work iteratively from initial parameter guesses and can return the latest coefficients even when they have not met their…

The document distinguishes a historical quantile estimate from a parametric Value-at-Risk forecast based on Student’s t returns. It describes fitting a t-distribution to log returns, then estimating a one-day-ahead VaR by taking a lower-tail quantile from…