Quantitative Finance Collector

Found a site providing financial analytics & risk management tools, FinCalc, as introduced by its webmaster: "FinCalc provides you with the tools to build advanced financial functions under Excel.   ...FinCalc covers bonds, money market, futures, options and interest rate derivatives."

Key points are:
Calendar with business holidays for the major financial centers.
Bond analytics: yield to maturity, duration, accrued interest; valuation functions and sensitivity measures; bond cash flows; forward price and repo rate.
Derivatives: valuation functions and sensitivity measures european and american options; exotic options.
Discount curve construction based on money market rates,short term futures and swap rates.
Interest rates derivatives: valuation and sensitivity for swaps,swaptions, caps & floors.
Credit derivatives: valuation and sensitivity for CDS.
Portfolio analytics: volatility, expected return, tracking error, value at risk, portfolio optimization on an absolute basis or relative to a benchmark.
User friendliness: meaningful function and parameter names; user's manual, numerous examples and applications.
Excel add-in and examples to download.

For example, after downloading FinCalc.xla, opening it and other files saved in a same directory, a user is able to use the following modules:


The author protects the macro code with password, unfortunately. Check http://homepage.hispeed.ch/FinCalc/Index.htm if interested.

Binary option is a one of the simple &  common type of derivative, where the payoff is either a certain amount of prescribed cash, called cash-or-nothing option, or shares, called asset-or-nothing option. Intuitively, cash-or-nothing option holders receive cash if the option finishes in the money, asset-or-nothing option holders receive shares of asset if in the money, thereafter binary options are often named as digital options.

The pricing of binary options is straightforward under GBM framework, the widely used Black Scholes formula can be easily adopted for binary option valuation. Once we understand the principle and know how to price it, the next step probably is to trade binary options. There are several online option trading platform for an individual investor to choose, the one I'd like to review is EZTrader, who has revolutionized the way binary options are traded on the internet today, by supplying its customers with a simple, exciting, dynamic and highly profitable trading platform, very different from traditional option trading. Due to the simplicity and speed of our binary options trading system and the low minimum investment amount, it is able to reach investors with different profiles all over the world. Ranging from sophisticated investors that are looking for ways to hedge their positions in the traditional market, to amateur day traders looking for some "action" without risking large amounts of money, EZTrader developed a system suitable to most of everyone's goals.

EZtrader have taken the fear and uncertainty out of Forex trading to focus on an existing new kind of trade. At EZtrader you can trade Binary Options. With binary options you simply choose whether the stock price will go up or down by the expiration time and place you call or put accordingly. With EZtrader your winning return is fixed, you don’t have to leverage millions of dollars with every trade or setup complicated stop loss strategy. With EZtrader binary options everything you need is right in front of you.

Why do I select this online trading service? well, there are at least the following advantages of EZtrader I am aware of:
- A member is able to trade Nasdaq, Dow Jones and Commodities based options;
- Hourly trades;
- Open an account is free, absolutely No Fees;
- Members can choose to withdraw fund as they want;
...

Besides simplified trading process, EZTrader members are provided with a complete set of tools to help them optimize their trading. Tools include live financial news, references to financial sites and a wide variety of tradable options, and more. Check EZtrader home page regularly for new promotions that will help you to get the most out of your trades, for example, one promotion is: If you deposit a total of $550.00 today, Monday, February 22nd, 2010, you will receive a bonus of $250.00 (%45)Registration is totally free and there are no commissions to pay ever.

To start trading, first go to trading area after sign in, you will find a pool of options to choose

Choose an option to trade from the list of available options, then select the type of trade, either CALL or PUT, enter the amount you would like to trade. you can change the trade type from CALL to PUT or vice-versa even after entering an amount, finally click 'Trade' to execute your trade. Simple & new binary options trading platform, start applying your derivative quantitative skills directly at EZTrader.

A blog reader wrote me an email few weeks ago regarding if it is possible to share an excel for Value at Risk xls calculation, I didn't notice that email until recently, sorry for that. So this afternoon I created a naive excel xls file with VBA macro code available.

Before checking the excel, few sentences explaining Value at Risk calculation are necessary: Value at Risk (VaR) is the maximum loss not exceeded with a given confidence level 0

Given confidence level and horizon day, the crucial point for quantile estimation is to find a suitable distribution of underlying risk factors, once distribution is known, VaR and ES can be easily calculated by the definition. Mina and Xiao (2001) explains in detail three popular methods to compute VaR: parametric approach (the simplest one is delta-normal), Monte Carlo simulation (MC) and Historical simulation (HS). I am not going to talk in detail how to calculate them as interested reader can refer to the paper or the book by John Hull, a short comparison of the above-mentioned three approaches are listed below,
• HS
– easy to implement, no distribution assumption;
– highly depends on the choice of sample data length, VaR result does not vary often or changes suddenly.
• MC
– flexible, almost suitable for any distribution;
– assumption of risk factors return required, time consuming.
• Parametric
– easy to implement, not hard to understand;
– assumption of risk factors return required, too simple assumption or too exotic to implement.

Attached is the ValueatRisk.xls file, where for simplicity, I treat volatility as normal standard deviation, Value at Risk is computed by delta-normal, monte carlo simulation and historical simultion for any single equity, you have to make sure internet is accessible for downloading data from Yahoo. Please keep in mind this file is created for illustration only, use at your own risk.

To use it, you need to fill in several parameters including:

where you can change stock symbol "IBM" to any stock you want, as long as its trading prices are available at Yahoo finance.

Please let me know any error, cheers.

Download

Click to download

1, Market Timing & Trading Strategies Using Asset Rotation, "In this paper we present empirical results on the statistical and economic viability of a market timing trading strategy that is based on rotation between two risky assets. We use data on Exchange Traded Funds (ETFs) and models for both the returns and the volatility of the underlying assets." http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1537914
2, Hedging the Black Swan: Conditional Heteroskedasticity and Tail Dependence in S&P500 and Vix, "In this paper, we show how the conditional approach of Heffernan and Tawn (2004) can be implemented to model extremal dependence between financial time series. A hedging example based on VIX futures is used to demonstrate its flexibility and superiority against the conventional OLS regression approach." http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1549164
3, Stability of Mean-Variance Portfolio Weights, "The mean-variance portfolio weights are known to be strongly affected by the estimation errors of the parameters of asset distribution. Our paper studies this phenomenon from a new angle. We distil the stability measurements of separate coordinates of portfolio weights estimator into a single number. We derive analytical formulas that relate this measure with the mean and the covariance matrix of asset returns." http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1553073
4, Unusual News Events and the Cross-Section of Stock Returns, "We show that stocks that experience a sudden increase in idiosyncratic volatility earn abnormally high contemporaneous returns but significantly underperform otherwise similar stocks in the future." http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1362121
5, Exact Simulation of Point Processes with Stochastic Intensities, "This paper develops a method for the exact simulation of point processes with stochastic intensities. The method is based on a change of the filtration that describes the information flow in the point process model." http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1551647

A guest post by Susan C. Walker.

"Cash on the sidelines is bullish for stocks." Have you ever heard some stock market pundit utter these words? Have you ever wondered if the statement were true? Read this item from the latest issue of The Elliott Wave Financial Forecast, and you'll wonder no more:

Myth -- Cash on the sidelines is bullish for stocks. This refrain rang like a gong all the way through the declines of 2000-2002 and 2007-2009. In February 2000, when mutual fund cash hit 4.2% (compared to 3.8% in November), The Elliott Wave Financial Forecast issued its “cash is king” advice. Once again, the word on the street is that there is way too much “cash on the sidelines” for stocks to fall precipitously. This chart shows net cash available to investors plotted beneath the DJIA. In December 2007, available net cash expanded to a new high, besting all extremes since at least 1992, a 15-year time span. Despite the presence of this mountain of cash, the DJIA lost more than half its entire value over the next 15 months. Indeed, as the chart shows, cash remained high right as the stock market entered the most intense part of the crash in 2008. Available cash does correlate with the market’s moves, but the market is in charge, not the cash.
----The Elliott Wave Financial Forecast, Jan. 29, 2010

Now take a look at these 10 statements and decide if they are true:

1, Earnings drive stock prices.
2, Small stocks are the place to be.
3, Worry about inflation rather than deflation.
4, It's enough to simply beat the market.
5, To do well investing, you have to diversify.
6, The FDIC can protect depositors.
7, It's bullish when the market ignores bad news.
8, Bubbles can unwind slowly.
9, People can make money speculating.
10, News and events drive the markets.
Bob Prechter and our other analysts have debunked each of these statements as a market myth. You can discover how we exposed these ideas as myths, and in turn make more informed decisions about your investing.

We've gathered the writings that expose these 10 statements as market myths in our 33-page eBook, called Market Myths Exposed. They come from two of our premier publications, The Elliott Wave Theorist and The Elliott Wave Financial Forecast, as well as two of our books, Prechter's Perspective and The Wave Principle of Human Social Behavior. The 33-page eBook takes the 10 most dangerous investment myths head on and exposes the truth about each in a way every investor can understand. You will uncover important myths about diversifying your portfolio, the safety of your bank deposits, earnings reports, investment bubbles, inflation and deflation, small stocks, speculation, and more! Protect your financial future and change the way you view your investments forever! Learn more, and get your free eBook here.