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4
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0answers
200 views

How can I introduce exogenous variables in the equation of the conditional variance?

Is it possible to introduce dummy variables or explanatory variables in the GARCH variance equation (garchset and garchfit).This is done in the mean (ARMAX) equation through the input 'Regress' in ...
1
vote
0answers
112 views

Method to combine trading signals to achieve higher sharpe

There are a few thread with the question of methods to combine different trading signals/strategies. But is there any method that can ensure that by combining two signals, we can achieve a better ...
0
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0answers
34 views

Risk-Neutral Probabilities

Consider one period Arrow-Debreu model with $N = 2$ and $M = 4$ show in Figure: Find all the possible risk neutral probability $\pi$. What I am confused about is how $D_1$ and $D_2$ have an up and ...
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0answers
29 views

Arbitrage free price

I could not find much information on this question: what is an arbitrage free price in trinomial model? If there is, is there any way of replicating a call option under this model? Although I have ...
0
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0answers
23 views

Market standards

Having a high quality pricing models is one of the main expectation of people working in finance, in fact the pricing models delivered should be proved to be accurate, following the latest market ...
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0answers
49 views

Risk-neutral probabilities

I will use this theorem 3.2 from the book "Quantitative modeling of Derivative Securities" by Marco Avellandea: Theorem 3.2 - Assume that there is no arbitrage, i.e. there exists a risk neutral ...
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0answers
35 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 ...
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0answers
40 views

Engle Granger test returns a 0 in matlab, while correlation factor is .80+. Am I doing something wrong?

Engle Granger test is giving me a ans = 0. The correlation factor is: 0.8+ Does this imply the No cointegration hypothesis is true? i.e. as per my understanding that there is cointegration? I am ...