The models tag has no wiki summary.
2
votes
2answers
106 views
Why do long-term equity return forecast models use dependent observations?
I've been reading up on different models used to forecast the equity risk premium, and I've seen a couple of papers that had questionable methods. For example, this paper by Javier Estrada goes into ...
1
vote
1answer
86 views
Good Model Calibration Books/Papers for Common Option Pricing Models
I am trying to find a good book which focuses on the model calibration. I just want to know generally, what are the most common methods of model calibration(such as Black-Scholes Model, Stochastic ...
2
votes
3answers
127 views
Are there any derivatives which pay amount $a(p-b)^{2}-c$ where $p$ is the price of underling asset?
Are there any derivatives which pay amount $a(p-b)^{2}-c$ where $p$ is the price of underling asset ? (or in the case of options $max(0,a(p-b)^{2}-c)$) I'm not very strict here but I only want to know ...
3
votes
2answers
134 views
Typical coefficients uses in square-root model for market impact
The square-root model is widely used to model equity market impact. It assumes that volatility, traded volume, total volume, and a spread cost are the drivers of slippage.
Jim Gatheral has an ...
12
votes
2answers
554 views
How do we use option price models (like Black-Scholes Model) to make money in practice?
In quantitative finance, we know we have a lot of option price models such as geometric Brownian motion model (Black-Scholes models), stochastic volatility model (Heston), jump diffusion models and so ...
4
votes
0answers
97 views
Discrete-time Jump-Diffusion Model
I am wondering if anybody could point me to any literature that talks about a discrete time version of the jump-diffusion model, I am aware that there is a paper by Amin (1993) that shows a discrete ...
3
votes
1answer
183 views
mortgage prepayment model
I am trying to develop my own MBS prepayment model. I am confused by the terms SMM and CPR. Are they estimates/models in themselves or are they ACTUAL data for the MBS pool. where can I find actual ...
8
votes
3answers
421 views
Implementing a Fast Fourier Transform for Option Pricing
So, I'm in need of some tips regarding a small project I'm doing. My goal is an implementation of a Fast Fourier Transform algorithm (FFT) which can be applied to the pricing of options.
First ...
13
votes
2answers
571 views
Why isn't the Nelson-Siegel model arbitrage-free?
Assume $X_t$ is a multivariate Ornstein-Uhlenbeck process, i.e.
$$dX_t=\sigma dB_t-AX_tdt$$
and the spot interest rate evolves by the following equation:
$$r_t=a+b\cdot X_t.$$
After solving for $X_t$ ...
6
votes
1answer
159 views
What are some quantitative ways to obtain the view confidences in Idzorek's version of Black-Litterman?
I'm using Idzorek's version of the Black-Litterman model for estimating asset returns. Idzorek's version bypasses the need to estimate directly the covariance matrix $\Omega$ of errors in the various ...
4
votes
0answers
458 views
Help With Quant Modelling Software
Im a software developer (freelance) working in investment banking, and I'm looking to improve my CV by gaining a better understanding of the financial quant role and the software used by quants to ...
4
votes
1answer
115 views
What are some common models for one-sided returns?
One typically models the log returns of a portfolio of equities by some unimodal, symmetric (or nearly symmetric) distribution with parameters like the mean and standard deviation estimated by ...
4
votes
1answer
174 views
Can binary model lead to non-normal distribution?
If we suppose an instrument goes up or down 1 tick per $\Delta t$ (binary
model), its long term distribution will be normal, per the Central
Limit Theorem.
However, suppose we model as follows:
The ...
7
votes
1answer
397 views
Monte carlo portfolio risk simulation
My objective is to show the distribution of a portfolio's expected utilities via random sampling.
The utility function has two random components. The first component is an expected return vector ...
8
votes
1answer
178 views
How should FX options be priced when a currency is artificially capped?
The question is inspired by yesterday's (06/09/11) historic announcement by the Swiss National Bank that it would impose a ceiling on the franc of 1.20 against the euro.
I would like to know if there ...
7
votes
1answer
429 views
What methods do I need to learn in order forecast asset price movements?
What are the standard models used to forecast asset price movements? For example, if I were to trade an option, what model would I use in conjunction with option pricing models to forecast the stock ...
5
votes
2answers
204 views
Question about equations and risk factors.
Say I have two risk factors $X_1$ and $X_2$. Standard deviation for $X_1$ is $\sigma_1$ and $\sigma_2$ for $X_2$. Furthermore, $X_1$ has a mean of $\mu_1$ and $X_2$ has a mean of $\mu_2$. Correlation ...
4
votes
1answer
155 views
How to scale option pricing components in regard to time
I am looking at closed-form options approximations, in particular the Bjerksund-Stensland model.
I have run into a very basic question. How should I scale the input variables in regard to time? My ...
10
votes
3answers
896 views
George Soros models
Mr. Soros in his books talked about principles which are not used by today's financial mathematics — namely reflexivity of all actions on the market. Simply it can be given by following: ...
7
votes
3answers
479 views
Does the gamma function have any application in quantitative finance?
I was looking into the factorial function in an R package called gregmisc and came across the implementation of the gamma function, instead of a recursive or iterative process as I was expecting. The ...
12
votes
3answers
624 views
Discrete-time model: stock dynamics
I am working in the area of probability theory and for a case study I would like to make some calculations in finance. Since I am developing theory for the discrete time, I am interested in models for ...
8
votes
1answer
253 views
Are there any standard MBS coupon stack models?
I need to model MBS coupon stack prices. It would not be difficult to create something from scratch, but I don't want to re-invent the wheel (and explain why I did) if a somewhat standard model ...
27
votes
6answers
2k views
Paradoxes in quantitative finance
Everyone seems to agree that the option prices predicted by the Black-Merton-Scholes model are inconsistent with what is observed in reality. Still, many people rely on the model by using "the wrong ...
10
votes
1answer
303 views
Model Validation Criteria
Let's say I have a brand new fancy model on some asset class (calibration porcedure included over a set of vanilla options) in which I truly believe I made a step forward comparing to existing ...
11
votes
2answers
467 views
Operating parameters of market makers?
I'd like to get a feel for the operating parameters of official market makers. I'm looking more for discerning characteristics, rather than exact numbers or an exhaustive list of each MM.
Examples: ...
10
votes
2answers
880 views
Is there a standard model for market impact?
Is there a standard model for market impact? I am interested in the case of high-volume equities sold in the US, during market hours, but would be interested in any pointers.
