Quantitative Finance Weekly Newsletter – Friday, November 15, 2013

#AceNewsDigest – Question and Answers – Subject: Quantitative Finance

These are question people ask every week about finance and the markets, how many can you answer?

Quantitative Finance newsletter

Top new questions this week:

How is pricing and valuation done in practice with incomplete markets?

In mathematical finance complete markets are very nice. You essential have an unique ELMM (equivalent local martingale measure) $Q$ and you know how that the value $V_t$ at time $t$ of a contingent …

mathematics pricing
63b9774a15fe0f25a8a6d48735212145?s=128&d=identicon&r=PG&s=18 asked by hulik 3 votes

Dividend Index Futures

My question is dealing with the proportionality between Dividend Index Futures prices and Index prices. Indeed, we in the past we used to do a simple regression between these variables and use the …

futures regression index dividends dynamic
ebec34d3aa463957c0a696c401d900fd?s=128&d=identicon&r=PG&s=18 asked by user1646105 3 votes

Risk and Reward in practice

My question is a bit philosophical. As a risk manager I often have to tell portfolio managers to reduce risk (e.g. due to VaR limits or exposure limits). Then usually the discussion arises that if …

risk risk-management
d71fd14bed57faa760b16e8daeab17ff?s=128&d=identicon&r=PG&s=18 asked by Richard 3 votes
0f1373fbc48fce33158d19ed1a398132?s=128&d=identicon&r=PG&s=18 answered by Matt Wolf 5 votes

Mitigating gateway delay

A trading system has $n$ colocated uplinks to TCP order entry gateways $g_1, \dots, g_n$ on a given exchange. Each gateway $g_i$ has a different order entry delay function $d_i(t)$ as a function of …

high-frequency order-handling latency
439db9ac83f4ea14a904390900ec6634?s=128&d=identicon&r=PG&s=18 asked by Randomblue 3 votes
7cee1218d712f8b4e2d95809850edf77?s=128&d=identicon&r=PG&f=1&s=18 answered by user2964219 3 votes

Bond Convexity Treasuries Futures

I know long duration bonds, on a a single bond basis, exhibit convexity however do treasury futures prices and the 10 yr yield exhibit the same property? Below is a plot of continious ten year …

fixed-income convexity
7426aa2b2a119593ceb346114bad7049?s=128&d=identicon&r=PG&s=18 asked by jessica 3 votes

Pricing of Forward Contracts in "Term-Structure Models: A Graduate Course" by Filipovic

I have a question about the Pricing of a Forward Contract in "Term-Structure Models: A Graduate Course" by D. Filipovic.

In chapter $8$ he introduce the following (I quote): A forward contract $Y$, …

interest-rates mathematics pricing bond forward
63b9774a15fe0f25a8a6d48735212145?s=128&d=identicon&r=PG&s=18 asked by hulik 2 votes

Synthesize a futures spread option

Is it possible to synthesize a futures spread option using only the options on the spread’s underlyings? If so, how? If not, is there another way?

As an example, please show me how to synthesize …

options futures spread synthetic
3533415508cc1ab89a083a9d8a1ff259?s=128&d=identicon&r=PG&f=1&s=18 asked by quantycuenta 2 votes
wMoWk.jpg?s=128&g=1 answered by Chris Taylor 2 votes

Greatest hits from previous weeks:

How fast is QuickFix ?

In my firm we are beginning a new OMS (Order Management System) project and there is a debate whether we use Quickfix or we go for a professional fix engine? Because there is a common doubt that …

fix
1a101f166cfd8fe7992c6cb692ead06b?s=128&d=identicon&r=PG&s=18 asked by ali_bahoo 13 votes
aa6285532343827af4b4811de7d52277?s=128&d=identicon&r=PG&s=18 answered by murrekatt 11 votes

Using variance ratios to test for mean reversion

Can you use the variance ratio test to determine whether or not a time series is mean reverting? I’m using the Lo.Mac function in the vrtest library in R.

I’ve used the test to reject geometric …

time-series r
7ae4200f18e9bfb142a4f82964d399ac?s=128&d=identicon&r=PG&s=18 asked by wcampbell 4 votes
8529478c869cb404953dd6ad3c96d5cf?s=128&d=identicon&r=PG&s=18 answered by Ryogi 5 votes

Can you answer this?

Cross validation of a garch model

Suppose I divide a time series into 10 sequential time windows, where each window contains 1000 data points.

I want to do test 5 different garch models using cross validation.

So for each model, I …

garch cross-validation
b2e574a4de3a16d194c345fa39661e54?s=128&d=identicon&r=PG&s=18 asked by user847663 1 vote