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3
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0answers
25 views

Quantitative Real Estate Investment Finance

I'm wondering if there is an application of quantitative finance to real estate investment? Specifically I'm wondering about models for pricing small neighborhoods (or even single houses) that take ...
3
votes
1answer
125 views

Covariance structure of call option surface

Assume the observed call option prices $C(K_i,T_i)$ for $i = 1,\dots,N$ are disturbed by some unknown measurement noise $\epsilon$. What would an appropriate covariance structure be for $\epsilon$? ...
4
votes
1answer
166 views

Models crumbling down due to negative (nominal) interest rates

Dear Stackexchange users, given that the negative interest rates on a lot of sovereign bonds with maturity under 10 years are trading in the negative (nominal) interest rate territory (recently also ...
2
votes
0answers
52 views

Fitting High Frequency Indicators

I have a high frequency time series of the bid and ask prices of a stock recorded on every tick. For each data point I also have a certain indicators that predict the future movement of the price. The ...
8
votes
4answers
800 views

From Fourier Transforms to Option Values

I am trying to understand how Fourier transforms & Characteristics functions can be used to calculate option values. However, I am having difficulty following the process that is used in several ...
0
votes
0answers
6 views

FInding the Delta in margin based on Pricing, Unit Types, Product Mix, and Sale Types

Is there a way to find the change in margin based on the the changes in pricing, unit types, product mix and sale types? Is there a standard formula we can use? We have tried ...
1
vote
1answer
78 views

Covariance Matrix vs. Volatility Matrix

Consider a general multidimensional market model in which each of $m$ stocks is driven by $d$ Brownian motions (as in Shreve II, p. 226), viz. $$ dS_i/S_i = \alpha_i dt + \sum_{j=1}^d \sigma_{ij}dW_j, ...
5
votes
2answers
3k views

How to tune Kalman filter's parameter?

I plan to use Kalman filter to estimate saving account amount. However, I'm a bit lost at how to tune the filter's parameters. Taking as the example from the Wikipedia page, basically there are ...
2
votes
3answers
137 views

How to estimate parameters of geometric brownian motion with time-varying mean?

Does anyone know how to estimate $A$, $\sigma_1$,$\sigma_2$ from the following system? $$dx = \mu_t x dt + \sigma_1 x dB_x$$ $$d\mu = A(\bar\mu - \mu) dt + \sigma_2 dB_\mu$$ Variation in $x$ could ...
0
votes
0answers
33 views

Invoice Discount pricing model

I was wondering whether there exist pricing models in particular for Invoice Discounting contracts and short-term financing solution where credit risk plays a major role. Specifically, assuming that ...
0
votes
1answer
92 views

How to forecast bond price with time series

I have the goal of being able to develop a model that can forecast the future prices of european government bond (or other private bonds), particularly from the historical prices and returns of the ...
1
vote
0answers
63 views

How can I do a dynamic GARCH model using extended Kalman filter in R?

Today I was reading an article quoted here, in this article is proposed an adaptive (dynamic) Garch model. How can I do it in R? The use of extended Kalman filter or particle filter is indifferent. I ...
0
votes
0answers
15 views

Most-efficient/effective Incentive Scheme Design to Minimize Loan Default Probability

Here is an open-ended, hypothetical question regarding the optimization of a loan incentive scheme. Any and all suggestions/plans are welcome. Please ask any clarifying questions if you wish: A loan ...
2
votes
2answers
117 views

How to compute the conditional expected value of a geometric brownian motion?

I'm working on a project, and I have to use the cumulative and conditional expected value of the variations of a stock following a Geometric Brownian Motion. I know that the cumulative is as follows ...
0
votes
0answers
13 views

Cross-post on the prediction mean squared error of a model

In accordance with what discussed in the meta here I am cross-posting this question from cross-validated. Suppose my model is $y_t = \alpha + \beta t + \epsilon_t$ the l-step-ahead prediction is ...
0
votes
0answers
10 views

Do you include negative changes in Working Capital in an uFCFF analysis?

I am running a uFCFF analysis for two different scenarios. In one scenario working capital goes down. Do I include this negative number in the "Change in WC" line? Wouldn't this represent that I am ...
5
votes
8answers
2k views

Why should we expect geometric Brownian motion to model asset prices?

Disclaimer: I am a complete ignoramus about finance, so this may be an inappropriate forum for me to ask a question in. I am a mathematician who knows nothing about finance. I heard from a popular ...
2
votes
0answers
24 views

What methods - inspired by Haavelmo’s Structural Econometrics - can show that a partial equilibrium model is unreliable? [closed]

According to Spanos 2014 Revisiting Haavelmo's Structural econometrics: Bridging the gap between theory and data Dynamic Stochastic General Equilibrium models are statistically inadequate, in such an ...
3
votes
2answers
119 views

Black-Litterman, how to choose the uncertainty in the views $\Omega$ for smooth transitions form prior to posterior

In Black-Litterman we get a new vector of expected returns of the form: \begin{align} \Pi_{BL} = \Pi + \underbrace{\tau \Sigma P^T[P\tau\Sigma P^T+\Omega]^{-1}}_{\text{correction}}[Q-P\Pi] \end{align} ...
2
votes
2answers
186 views

How to find the best fitting GARCH model for a portfolio composed of 3 ETFs in R?

I am doing a project for my class Financial Time Series in which I am trying to forecast my portfolio log returns using a GARCH fit. I am having a bit of trouble determining the best way to fit this ...
2
votes
2answers
101 views

Using Financial Ratios to get credit rating or PD

Hello I'm looking for papers, aside from ones that use CDS spreads, about credit rating development or estimating default probability based on financial ratios that also include methodology and maybe ...
4
votes
4answers
237 views

Credit Rating or Probability of Default from Financial Ratios

Does anyone know of any papers about credit rating development or probability of default estimation done based on financial ratios that also include methodology and maybe good/bad criteria? Something ...
1
vote
1answer
70 views

How to model the effect of earnings surprises on long-term returns?

I'm looking into modeling the relationship between EPS announcement surprises with long-term returns (1 quarter to 3 years with intervals). I've based my current methodology off papers looking at the ...
3
votes
0answers
165 views

Credit Rating vs Bond Yield

I am looking for some references on quantifying the dependence between credit rating and bond yield. I have some data (found some Bloomberg indices which give average yield based on credit rating), ...
2
votes
2answers
253 views

How to select optimal betting strategy from backtest?

I have written a model for predicting the winner of UFC fights. My model calculates the probability of each fighter to win a given match. I have back tested the model and found it to be very ...
2
votes
2answers
183 views

Predict Futures Prices based on weather + agricultural data

I’m working in the area of Data Mining and have come up with the following idea for my Masters project.The text may not be the best structured but it’s a working draft to give you a quick idea. ...
3
votes
1answer
925 views

How popular is the Linear Gauss Markov (LGM) model?

Some friends recommend to me Linear Gauss Markov model, saying it's interesting to have a look at it. Basically it's a framework different from HJM, with potential to extend, and the merit is that ...
3
votes
2answers
276 views

Resources for finding quantitative finance examples using excel, VBA and access

I am seeking to increase my knowledge in the quantitative finance field. I would be grateful if someone could point me to useful resource online, where I can find working examples of they types of ...
11
votes
2answers
2k views

Modelling with negative interest rates

For a project, I am interested to model the impact of recently negative interest bonds on the portfolio. The literature on modelling negative interest rates is limited, and the only theory I could ...
7
votes
7answers
427 views

Are the sin, cos, tan functions used in some financial calculations?

I ask because those functions are on the TI BA II Plus financial calculator.
3
votes
2answers
177 views

Modelling driftless stock price with geometric Brownian motion

I wish to understand some basic fact about the (primitive) simulation of stock prices with geometric Brownian motion. If $S(t)$ is the stock price at time $t$, and the stock price follows geometric ...
0
votes
1answer
69 views

Making portfolios better than others for a 16 week portfolio game? [closed]

I'm going to participate in a game of making portfolios. The objective of the game is to make the portfolio with the bigger ROI over 16 weeks. Over each week every player can see the ROI of each ...
3
votes
0answers
157 views

“Stable-Floating” model for non-maturing deposit for FTP purpose

Non-maturing deposits (NMD) is a deposit without maturity date. The deposit rate is normally low. Banks could adjust the rate at any time. The customer can withdraw without penalty, however, in real ...
0
votes
1answer
39 views

GNP/GDP and modelling [closed]

Is GNP a continuous, static or a dynamic model ? What about GDP ? What I do know is that it has yearly discrete values. However, when it is modeled, it becomes a continuous graph. So what exactly is ...
2
votes
1answer
114 views

Is there an easily implementable alternative to lognormal growth (something with fatter tails)?

I have a toy model in Excel for the growth of a investment portfolio. I assume iid lognormal annual growth factors: =EXP(mu+sigma*NORM.S.INV(RAND())) where mu and ...
1
vote
2answers
137 views

how to extend lognormal model so that $\sigma$ is correlated to $\mu$?

Consider a log-normal model, $dx / x = \mu dt + \sigma dW$, where $W(t)$ is a Wiener process. Let's say $\mu$ and $\sigma$ change with time, slowly, so we note them by $\mu(t)$ and $\sigma(t)$. ...
5
votes
2answers
231 views

Risk neutral Esscher transform of exponential Levy processes

Let $X_t$ be a Levy Process and $e^{X_t}$ the corresponding exponential Levy process. Using the Esscher transform for a change of measure for which the Radon-Nykodym derivative is ...
4
votes
0answers
224 views

Algorithmic Trading Model Calculation and Stale Data

I'd like ask everyone a more concurrency programming but definitely quant-finance related question. How do you deal with staleness of data in market hours as quote ticks are streaming and your model ...
3
votes
1answer
115 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 ...
6
votes
1answer
988 views

Can the Heston model be shown to reduce to the original Black Scholes model if appropriate parameters are chosen?

Summary For Heston model parameters that render the variance process constant, the solution should revert to plain Black-Scholes. Closed from solutions to the Heston model don't seem to do this, even ...
2
votes
1answer
67 views

Finding Credit Risk Population Data

Are there any free or relatively cheap sources of aggregate data on credit risk for specific geographic regions, ages, and so on?
-2
votes
1answer
354 views

Interest Rate Swaps on Mortgages [closed]

Is it possible to get interest rate swaps on mortgages? If not, why not? Are there models that describe this? Any direction would be great.
2
votes
2answers
251 views

Shortcomings of generalized Brownian motion for asset price modelling

I'm simply interested on hearing some views on which shortcomings arise by using the (multidimensional) SDE $$dS(t)=S(t)\alpha(t,S(t))dt+S(t)\sigma(t,S(t))dW(t)$$ as a model for asset prices. I know ...
7
votes
1answer
329 views

Inflation modelling

I am trying to price an option on the Spanish CPI. The option is a European call with a single observation date. However, I am fairly new to inflation modelling, so there are two areas in which I ...
6
votes
5answers
3k views

Predicting Price Movements on a Betting Exchange

On a betting exchange the price (the odds that an event will happen expressed as a decimal, 1/(percentage chance event occurring) of a runner can experience a great deal of volatility before the event ...
2
votes
0answers
108 views

A doubt about Evans and Jovanovic (1989) economic model for entrepreneurs with credit constraints

[I already posted this question on the math forum of stackexchange and I was advised that I should post this question here] In Evans and Jovanovic (1989) you will find a model for entrepreneurs with ...
11
votes
3answers
483 views

What is a commonly accepted econometric model for volume?

What is the gold standard econometric model for volume? For example, a common model for price is the autoregressive (AR) model with GARCH(1,1) innovations. Do you know of any good survey articles ...
5
votes
2answers
930 views

What are common methods for modeling intraday trading volume?

What are the most common ways to model intraday trading volume, particularly for futures contracts? There are obviously a number of seasonal-type factors, like roll, economic news releases, time of ...
7
votes
1answer
490 views

How to model time series of illiquid stocks - 400 observations (transactions) per 8 hours?

How to model time series which are illiquid - 400 observations (transactions) per 8 hours ? Are there models suitable for this situation which incorporate not only size of the transactions but also ...
0
votes
0answers
100 views

Modelling interest rate: AR(2) modelling

I have a time series of spread that follows an $AR(2)$ (Autoregressive model of Order 2). I need an interest rate model that represents that dynamics. What model should I use?