The tag has no usage guidance.

learn more… | top users | synonyms

2
votes
2answers
224 views

Pricing options under a specific framework

I have a specific framework in mind and I would like to value options under this framework. I am not sure whether a closed form solution exists or Monte Carlo methods would work. The framework I have ...
2
votes
1answer
82 views

The portfolio whose return is the stochastic discount factor

I am trying to construct a portfolio whose return is $a + bm_{t+1}$ where $a$ and $b$ are some constants for a certain investor. $m_{t+1}$ is the stochastic discount factor at time $t+1$. I am ...
0
votes
1answer
35 views

State Variables in a Bellman Equation

Can anyone explain to me exactly what a state variable is in a Bellman equation?? $$ V(x,y)=max\space u(c)+\beta V(x',y')$$ In some models with capital savings it's the capital $k_t$ you walk into ...
4
votes
0answers
164 views

ERP and FF 3-factor model

In a more conservative estimate than a simple historical average, Fama & French estimate (US) equity risk premium at 3-4% (e.g., Equity Risk Premium, JF, 2002). This suggests that in an APT-like ...
3
votes
0answers
17 views

Why should a factor not priced and yet is relevant to the return generating process

I am reading Elton's AFA presidential adress article here. http://people.stern.nyu.edu/eelton/working_papers/Expected_Return_Realized_Return.pdf In the paper, he is warning against using the average ...
3
votes
0answers
68 views

why many option contract price less than minimum boundary price?

I downloaded data from NSE(National Stock Exchange) website regarding closing price of European Call Option written on Index. From standard textbook, I read that option contract must satisfy $C(t) ...
3
votes
0answers
174 views

GMM time-series regression factor model with factors that are not returns

Factor models with factors that are not returns are usually estimated and tested by cross-sectional regressions. However, there is a way to use time-series regression to estimate and test the model. ...
2
votes
0answers
30 views

Budget Constraint in Duffie's book

On Page 5 of Duffie's Dynamic Asset Pricing Theory, the budget-feasible set is defined as: $$X(q,e) = {e+D^T\theta \in R_+^s:\theta \in R^N, q\theta \leq 0}$$ Compared to Kerry Back's presentation of ...
1
vote
0answers
20 views

How to understand stock return comovement

In his book "Asset Pricing" chapter 20, Cochrane said For example, suppose that average returns were higher for stocks whose ticker symbols start later in the alphabet. (Maybe investors search ...
1
vote
0answers
52 views

How to map shocks from VAR to news? (Academics)

I am trying to map shocks from VAR to discount-rate and cash-flows news following the paper of Campbell and Vuolteenaho (2004). It is said that news are a linear combination of shocks from VAR at ...
1
vote
0answers
54 views

How to value a portfolio of non-mature consumer loans?

I'm looking for the best way to value a portfolio of consumer loans that have NOT reached maturity and for which I do observe the payment/default history to date? I'm working with a large database of ...
1
vote
0answers
203 views

Market Standard Pricing Models for Fixed Income Securities (Vanilla)

To clarify my heading, I have been searching for a material that consolidates all standard Fixed Income Security Pricing. E.g. ...
0
votes
0answers
11 views

Transaction costs estimate for investment strategy

I'm examining a strategy based on profitability. I sort UK stock into 10 portfolios based on their gross profits-to-total assets ratio. Then, I create long-short portfolios by subtracting the high ...
0
votes
0answers
24 views

commodity asset pricing

This is not a quant question but more a fundamental question. At the moment, WTI next month’s contract is trading at $29/B. My question are: Is it safe to assume delivery cost at Cushing is priced ...
0
votes
0answers
36 views

Reducing multicollinearity in Arbitrage Pricing model

I am working on a test example where the idea is to come up with a model that predicts S&P500 returns using the 9 S&P subsectors(XLY,XLP,XLF,etc) as FACTORS.Now i know there exists ...