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7
votes
1answer
1k views

Time series price prediction and linear regression: using high/low rather than last quotes price

Discrete time series regression models, like ARIMA, are usually built around the assumption that we only have 1 available price for each period t, which I will call the Close. In reality asset time ...
6
votes
1answer
68 views

Mutivariate t markets

We know that some markets exhibit marginals well approximated by Student t distributions. But what is the dependence structure? Is the multivariate density really elliptical (as we all wish for) or ...
6
votes
4answers
1k views

Using rolling returns in a multivariate linear regression?

I am trying to use fundamental factors such as PE, BV, & CFO in a multivariate linear regression with the response variable being the rolling 1 month returns. But this approach seems flawed as the ...
5
votes
1answer
389 views

Major FX pairs - Pentahedron Data Structure

I read an interview today with Stephane Coquillaud. He talked about this idea of formulating a data set of the G5 currencies as a pentahedron. The obvious benefit is the fact that there is more ...
5
votes
0answers
590 views

Alternative to Block Bootstrap for Multivariate Time Series

I currently use the following process for bootstrapping a multivariate time series in R: Determine block sizes - run the function b.star in the np package which produces a block size for each series ...
3
votes
0answers
30 views

Basket Default Swap (BDS)

I would like to understand better the $n^{th}$ to default pair spreads of a basket default swap containing $m>n$ entities. For example, consider 2 single name CDS's with same spread and same ...
3
votes
0answers
97 views

Estimating two normal random numbers with one equation

Subtitle: Estimating the correlation of the shocks driving two commodities in two multi-factor models I am fitting two 2-factor models to electricity and gas futures, respectively. In order to ...
2
votes
4answers
187 views

Copulas simply explained

I try to understand the basic idea of copulas, however I am still struggling and hope that someone can help me. I understood that in general a copula is a function which links several marginal ...
2
votes
1answer
112 views

How to see the impact of one variable on a set of other variables?

Editing my question: I have decided to use multiple factor model to model my stress test. I am using factor shock method to implement the propagation of shocks. I am doing this according to a book ...
1
vote
0answers
23 views

How to estimate constrained a constrained VAR(1) with MATLAB?

Suppose I want to estimate the following VAR(1) model: $$ Y_t = \mu + \Phi Y_{t-1} + \varepsilon_t $$ where $Y_t=(y_{1t}, y_{2t},…,y_{kt})'$, $\mu=(\mu_1,…,\mu_{k})’$ and $\Phi$ a matrix of ...
1
vote
1answer
26 views

Spread options on prices or returns?

I need some clarifications regarding spread options. I have always found them characterized as paying, at maturity, the difference between the prices of two underlying assets: $$ (S_1(T)-S_2(T)-K)^+ ...
0
votes
2answers
169 views

Interpretation of PCs

I have computed PC1 and PC2 wts on future contracts derived from cumulative log differences. How can I use them to get back the theoretical price of each contract using those 2 pcs? Thanks in ...