Valuation of Warrants-Derivative Pricing in Python

Posted on August 18, 2020 By Harbourfront Technologies

A warrant is a financial derivative instrument that is similar to a regular stock option except that when it is exercised, the company will issue more stocks and sell them to the warrant holder. Warrants and options are similar in that the two contractual financial instruments allow the holder special …

Impact of a Low Correlation Trading Strategy

Posted on August 17, 2020 By Harbourfront Technologies

When constructing a portfolio, adding a low correlation, low Sharpe ratio strategy can have the same impact as adding a high Sharp ratio strategy. The low correlation strategy is a great diversifier. The core argument presented in this paper –that SR is a misleading index of whom a fund should …

Performance Share Units-Derivative Valuation in Python

Posted on August 5, 2020 By Harbourfront Technologies

In a previous post, we wrote about Employee Stock Options, a form of financial compensation that a company uses to reward its employees. In this post, we are going to discuss another form of compensation, Performance Share Units. Performance share units (PSUs) are hypothetical share units that are granted to …

Employee Stock Options-Derivative Pricing in Python

Posted on July 30, 2020 By Harbourfront Technologies

Employee Stock Option (ESO) is a form of compensation that a company uses to reward, motivate, and retain its employees. An employee stock option (ESO) is a label that refers to compensation contracts between an employer and an employee that carries some characteristics of financial options. Employee stock options are …

Valuing American Options Using Monte Carlo Simulation –Derivative Pricing in Python

Posted on July 24, 2020 By Harbourfront Technologies

In a previous post, we presented the binomial tree method for pricing American options. Recall that an American option is an option that can be exercised any time before maturity. A drawback of the binomial tree method is that the implementation of a more complex option payoff is difficult, especially …

Garman-Klass-Yang-Zhang Historical Volatility Calculation – Volatility Analysis in Python

Posted on June 30, 2020 By Harbourfront Technologies

In the previous post, we introduced the Garman-Klass volatility estimator that takes into account the high, low, open, and closing prices of a stock. In this installment, we present an extension of the Garman-Klass volatility estimator that also takes into consideration overnight jumps. Garman-Klass-Yang-Zhang (GKYZ) volatility estimator consists of using …

Garman-Klass Volatility Calculation – Volatility Analysis in Python

Posted on June 23, 2020 By Harbourfront Technologies

In the previous post, we introduced the Parkinson volatility estimator that takes into account the high and low prices of a stock. In this follow-up post, we present the Garman-Klass volatility estimator that uses not only the high and low but also the opening and closing prices. Garman-Klass (GK) volatility …

Parkinson Historical Volatility Calculation – Volatility Analysis in Python

Posted on May 31, 2020 By Harbourfront Technologies

In the previous post, we discussed the close-to-close historical volatility. Recall that the close-to-close historical volatility (CCHV) is calculated as follows, where xi are the logarithmic returns calculated based on closing prices, and N is the sample size. A disadvantage of using the CCHV is that it does not take …

Close-to-Close Historical Volatility Calculation – Volatility Analysis in Python

Posted on April 30, 2020 By Harbourfront Technologies

In a previous post, we touched upon a stock’s volatility through its beta. In this post, we are going to discuss historical volatilities of a stock in more details. If you want to use the online version, go to Historical Volatility Online Calculator. Also referred to as statistical volatility, historical …

Equity Beta: What Is, Example, Formula, How to Calculate Stock Beta in Python

Posted on March 31, 2020 By Harbourfront Technologies

What is equity (or stock) beta? In finance, beta measures a stock’s volatility with respect to the overall market. It is used in many areas of financial analysis and investment, for example in the calculation of the Weighted Average Cost of Capital, in the Capital Asset Pricing Model and market-neutral …