Nuclear Phynance

Hedging Currency Risk -- USD to EURO

naked — Thu, 17 May 2012 16:47:21 GMT

Hey Quants, I've been away for a long time and hoping one of you can help with a practical solution.

Question:

A 20m EURO deal is closing and the currency is currently in USD that needs to be converted. Given the climate today and the expectation that the EURO could trade 1.2500, what's the best way to hedge / profit on this scenario?

Any guidance, practical trades that could be put on, OTC contracts, suggestions, etc would all be greatly appreciated.

Cheers!

Immediate Or Cancel

janne — Wed, 16 May 2012 14:52:16 GMT

What added information would published non-matched IOC orders bring?

Regards,
Janne

Greek Bank Jog

Steve Castle — Wed, 16 May 2012 13:57:18 GMT

I'm only posting this because I thought the term "bank jog" was hilarious.

FT Alphaville Article on Greek deposit flight

Pricing Bermudan Callable Derivatives with Default, Collateral Margining, Funding and Investment Costs

amin — Wed, 16 May 2012 08:23:41 GMT

I did a research note on Pricing Bermudan Callable Derivatives with Default, Collateral Margining, Funding and Investment Costs. I will request W****tt friends for comments on the paper. It will be great if somebody could point out if there are any errors. I posted it on SSRN. The address is http://ssrn.com/abstract=2060804

Structured Products on Equities

enright — Tue, 15 May 2012 19:53:44 GMT

I received an email stating the following and trying to figure out the moving parts. Excuse the sics, this is copied from the email. From what I gather, is the buyer of this essentially selling a put on AAPL and going long some type of zero-coupon debt?

"4 times over next year (at end of quarter); we will look at price of AAPL. If AAPL is down more than 20% from initial strike price (to be determined May 18th); no coupon will be paid. If AAPL is down less than 20%; quarterly coupon paid (approx 4.5%). Example: May 18th, AAPL closes at $560.00 per share; Each quarter (approximately Aug 18th, Nov 18th, etc), the trigger point will be 80% of the $560.00 or $448.00.

If on any quarterly observation date AAPL closes at or above the initial share price, the note will be called at par and the investor will receive a quarterly coupon.

At the end of the 12 month period; we will look at AAPL stock price. If down more than 20% from initial strike price (in our scenario that AAPL prices at $560 on May 18th, if at the end of the 12 month time frame, May 18, 2013; AAPL is below $448.00); you will be put AAPL at the initial strike price.

If AAPL is down less than 20% or positive; you receive the last quarterly income coupon (4.5%) plus redeemed at par value."

HDF5 for ticks

braincat — Mon, 14 May 2012 18:32:16 GMT

Is there anyone here using it for tick storage? I am trying to understand which data storage type would be most appropriate (e.g. hdf5 high-level table, packet table, separate timestamp column, etc.).
Thanks.

Predicting the outcome of roulette

aix — Mon, 14 May 2012 17:55:12 GMT

Just came across this recent paper: Predicting the outcome of roulette.

There have been several popular reports of various groups exploiting the deterministic nature of the game of roulette for profit. Moreover, through its history the inherent determinism in the game of roulette has attracted the attention of many luminaries of chaos theory. In this paper we provide a short review of that history and then set out to determine to what extent that determinism can really be exploited for profit. To do this, we provide a very simple model for the motion of a roulette wheel and ball and demonstrate that knowledge of initial position, velocity and acceleration is sufficient to predict the outcome with adequate certainty to achieve a positive expected return. We describe two physically realisable systems to obtain this knowledge both incognito and {\em in situ}. The first system relies only on a mechanical count of rotation of the ball and the wheel to measure the relevant parameters. By applying this techniques to a standard casino-grade European roulette wheel we demonstrate an expected return of at least 18%, well above the -2.7% expected of a random bet. With a more sophisticated, albeit more intrusive, system (mounting a digital camera above the wheel) we demonstrate a range of systematic and statistically significant biases which can be exploited to provide an improved guess of the outcome. Finally, our analysis demonstrates that even a very slight slant in the roulette table leads to a very pronounced bias which could be further exploited to substantially enhance returns.

I am yet to read it myself, but I thought you guys might find it interesting.

Java shit.

Nonius — Sat, 12 May 2012 22:56:42 GMT

I actually enjoy coding in Java, but I'm getting pretty frustrated with the clunkiness of it.

I could axe these questions on some Tech Guru website, but I've found a lot of those websites pretty lame.

I'm going to just try it here and add to the questions.

Q: With Java, since you have the JVM running + it takes care of memory stuff by garbage collection, what I find is that it eats into memory quickly if one isn't careful. I'm finding either the program crashes because it "runs out of heap space", OR, if I set -Xmx to some parameter, then the computer freezes. How to get the balance right?

stop-loss for a highly skewed process

Strange — Sat, 12 May 2012 21:25:45 GMT

I recall reading somewhere that stop-loss rules neither improve nor reduce your risk-adjusted returns. Supposedly, for a Brownian process this can be proven theoretically from stochastic integration point of view.

However, lets imagine that you have an instrument or a strategy that has a highly skewed return profile. What would be the theoretical impact of a stop loss when returns are highly skewed?

risk weighted portfolio using all wealth available

frstwrldprblm — Fri, 11 May 2012 16:54:52 GMT

if i have N equities and W wealth, investing W/N in each name (equally weighted), i have a dollar equal weighted portfolio.

now, if i have sigma_i for each equity, and sigma_p for the portfolio, how do i go about transforming W/N by sigma_i to have a risk weighted portfolio.

additionally, i want to exhaust W when i am fully loaded (invested in all N names).

any pointers towards papers or ideas is helpful.

i have an inkling that the problem is more trivial than i am making, and hesitate to turn to matlab without posting this here first.

thanks!

ques on govex

doreen — Fri, 11 May 2012 01:50:33 GMT

was hoping someone could help me. going thru the list of sec registered ats i cen see that in the fixed income space btec, espeed, marketaxess, etc are listed. why is govex not listed? curious as to how they can operate and not be required to register.

numerical solutions of forward-backward equations for nonlinear Markov processes

visayan — Thu, 10 May 2012 19:42:32 GMT

Hi all,

Can anyone refer me to a paper/book that explains how to numerically solve forward-backward equations for nonlinear continuous time Markov processes.

Thanks in advance.

Basic VIX question

gill — Thu, 10 May 2012 16:03:01 GMT

I cannot understand the basis between VIX index and VIX futures. I expect that on one trading day (typically Tue 30 days before options maturity) the difference should be pretty small. But looking at the data I can see that it's not the case. I got my index data from CBOE site and futures data from BBMG.
What am i missing? I assume that VIX index calculations is used for settlement of VIX futures. Is it the case?

Optimum portfolio diversification with correlated brownian motions

Cren — Thu, 10 May 2012 08:08:56 GMT

Hi all.

Let I have 2-dimensional diffusions with 2 correlated noises; suppose I am short Call on those 2 underlyings.

I would like to minimize the expected loss from those underlyings going above Calls' strike prices... modifying the number of underlying-1-Calls and the number of underlying-2-Calls I'm going to sell.

In particular, I don not know how to insert weights in Brownian motion expressions in order to obtain a solvable expression.

Thank you :)

Prop groups for futures trading?

HockeyPlayer — Wed, 09 May 2012 15:24:32 GMT

I run a small high frequency prop trading firm. I just got approached by an ex-trader who wants to use our commissions and margin for a strategy that doesn't need our software. We don't have the infrastructure, processes or desire to start backing traders.

I assume there must be trading firms that would provide low commissions and margin financing in exchange for this trading putting up some amount of first-dollar-loss capital and a percentage of the profits. Can you suggest any such firms?