# Tagged Questions

Questions having to do with financial mathematics. Please note that for questions in quantitative finance, quant.stackexchange.com is perhaps a better site.

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### Minimum variance portfolio problem

So the question asks: There are N (N > 1) stocks with the same variance $σ^2$ and the same pairwise correlation coeﬃcient γ (i.e. $c_ij$ = γ for all i = j. γ is a given constant such that 0 ≤ γ < ...
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### why does this answer on paying a mortgage two years earlier make sense?

Suppose that you took a mortgage of 100000 on a house to be paid back in full by 10 equal annual installments, each consisting of the interest due on the outstanding balance plus a repayment of a part ...
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### How to find arbitrage for forward rate of exchange?

Assume that $S(0)$ is the current rate of exchange for foreign currency. Assume that and $K_h$ and $K_f$ are rates of return on home and foreign currency if it is invested over a period $T$. (A) ...
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### can someone explain how bonds work and how to calculate the value of a bond?

I am taking financial mathematics and in class I learned a formula to calculate the value of a bond, $B=\frac{F}{1+r}$ if one payment or if coumpund $B=\frac{F}{(1+r)^n}$ where $B$ is the value of the ...
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### Effective rate of interest

An investor purchases $1000$ worth of units in a mutual fund whose units are valued at $4.00$. The investment dealer takes 9 % front-end-load (deduction) from the gross payment. One year later the ...
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### method/technique for finding arbitrage

I was able to solve this problem and find the arbitrage but only after spending a long time on it and trying out different possibilites, is there a method or technique that can help me find the ...
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### Finding the accumulated profit.

The above project is financed by a loan. The company pays 6.25% on the money borrowed and earns 4% on money invested in its deposit account.(Spare funds can't be used to repay the loan at any time) ...
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### Can someone explain what a portfolio is in financial math?

I took mathematical probability last semester and now I am taking financial mathematics, but only probability was a pre requisite for financial math (no finance classes were required). These types of ...
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### Stock Price Dynamics correlated with Bond market returns

I am currently working on to derive the following form of the stock price dynamics: $$dS_t = S_t[(r_t + \psi\sigma_S)dt + \rho \sigma_S dz_{1t} + \sqrt{1-\rho^2}\sigma_S dz_{2t}$$ where the ...
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### interest being compounded annually

What sum would amount to 31,104 in three years at 20% p.a Compound interest, interest being compounded annually ? (Ans: 18,900) Solution: \begin{align*} C I &= A – P \\[1ex] P &= 31104 – ...
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### Black Scholes Constant Implied Volatility

I hope someone can clarify my ideas about the constant implied volatility in the classical Black Scholes framework. As well known, market practitioners quote the prices of vanilla call and put ...
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### interest being compounded half yearly.

What is the compound interest on $15000/-$ at $12\%$ P.a for one and half years, interest being compounded half yearly? (Ans: $C I = 2865.24$) I Selected this Procedure to solve: If a sum of $x$ is ...
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### how to show that definition for stochastic process in continuous time applies to stock prices

I know that the formal definition of a stochastic process is: {$X(t,\omega)\,\,t\ge0$} is a stochastic process if: For any fixed $t\ge0$, $X(t,\omega)$ is a random variable For any fixed $\omega$ ...
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