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3
votes
4answers
211 views

Intuition behind Fama-French factors

In the Fama-French 3-factor model the portfolio returns are explained by the market the SMB factor (Small [market capitalization] Minus Big) and the HML factor (High [book-to-market ratio] Minus ...
15
votes
4answers
2k views

Strictly local martingales: what is the intuition behind them?

A process $X_t$ is a local martingale if for each increasing sequence of stopping times $\{\tau_k,k=1,2,...\}$ the stopped process is a martingale. All true martingales are local martingales, but the ...
3
votes
1answer
147 views

What's the underlying idea of definition of constrained market in Skiadas' Asset Pricing Theory?

I'm self-studying Skiadas' Asset Pricing Theory, and find the definition of constrained market on page 21 confusing(you can find it here in the sample chapter). Definition 1.26. A constrained ...
11
votes
1answer
2k views

Easiest and most accessible derivation of Black-Scholes formula

I am preparing a QuantFinance lecture and I am looking for the easiest and most accessible derivation of the Black-Scholes formula (NB: the actual formula, not the differential equation). My favorite ...
21
votes
6answers
8k views

What is the intuition behind cointegration?

What is the intuition behind cointegration? What does the Dickey-Fuller test do to test for it? Ideally, a non-technical explanation would be appreciated. Say you need to explain it to an investor ...