Quantitative Finance Weekly Newsletter - Thursday, October 29, 2015

Quantitative Finance newsletter

Top new questions this week: Historical Volatility vs Implied Volatility Performance in Pricing Options I consistently read on academic papers, when pricing options, using implied volatility is better than using historical volatility. Because, market is more "forward-looking" and historical data is ... option-pricing volatility implied-volatility research   asked by berkorbay 6 votes answered by phubaba 0 votes Understanding skew of SPX - Why does IV of OTM puts increase with strike? I've been trying to understand the skew I see when looking at the skew of SPX. Here is a snapshot today from thinkorswim. I understand why IV increases for ITM puts -- namely because there is a ... options skew spx   asked by EpicAdv 4 votes answered by Alex C 2 votes Compare the IRRs of two bonds Say i have two 3 year bonds, which pay an annual coupon of 8% (1st bond) and 10% (2nd bond) respectively. Also, let's assume, that the spot curve is the same for both bonds. Other things equal, how ... bond   asked by iNarek94 4 votes answered by p.vitzliputzli 1 vote Why does the valuation of the floating leg of a swap only use the next payment? At time $t=0$, swap has zero cost. In fact, both parties may have valued the swap differently based on their zero swap curve-but somehow they agreed. Once a swap is agreed upon it cannot be dissolved ... swaps interest-rate-swap   asked by user12348 3 votes answered by AFK 7 votes Boundary conditions: Dirichlet vs Neumann I'm thinking about the interplay of Dirichlet and Neumann BCs in a FDM scheme. Let's assume a simple Black-Scholes call option problem, with BS PDE with constant coefficients, i.e. instead of $S$, in ... black-scholes-pde   asked by user2743931 3 votes answered by Brian B 1 vote Delta Hedging with fixed Implied Volatility or floating Implied Volatility? When delta hedging an option until expiry at implied volatility, is it better to rehedge using the fixed implied volatility given by the option price upon its purchase (or sale), or to rehedge using ... implied-volatility delta-hedging   asked by Christopher 3 votes answered by phlsmk 3 votes Constructing a Brownian motion from a Simple Random Walk I'm trying to get my head around how a Brownian motion is formed from a simple random walk. I've seen two similar methods used: Why has one approach used $\frac{1}{\sqrt{k}}$ and the other ... stochastic-processes brownian-motion random-walk   asked by kw3rti 3 votes answered by iNarek94 0 votes Greatest hits from previous weeks: How to interpret the eigenmatrix from a Johansen cointegration test? I ran a Johansen cointegration test on 3 instruments, A B and C. The results that I got are: R<=x | Test Stat 90% 95% 99% r=0 --> 36.7 18.9 21.1 25.8 r=1 --> 8.4 ... statistics cointegration   asked by Freewind 15 votes answered by Owen 12 votes What data sources are available online? What sources of financial and economic data are available online? Which ones are free or cheap? What has your experience been like with these data sources? data finance economics data-source   asked by John Smith 156 votes answered by Andy Nguyen 127 votes Can you answer these? How to calculate break-even point of merged plant/company? The question goes like this : **Particulars Plant A Plant B** Capacity utilization 70% 60% Sales 150 mil. 90 mil. ... risk-management finance analysis   asked by borb183 1 vote Generalized method of moments concept in CAPM testing In the course of my master thesis I've come across a paper by Carr and Wu (2009) where the authors evaluate whether returns on variance swaps can be explained by the simple CAPM. (really only market ... beta capm return   asked by anw 1 vote Fourth moment of arch(2) I am studying the ARCH(2) process given by $$X_t = \sqrt{h_t} \varepsilon_t$$ where $$h_t = \alpha_0 + \alpha_1 X_{t-1} ^2 + \alpha_2 X_{t-2} ^2$$ and $\varepsilon_t$ follows $N(0,1)$. Assuming the ... time-series modeling econometrics arch moments   asked by KaRJ XEN 1 vote

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