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6
votes
2answers
1k views

How to simulate cointegrated prices

Is there any simple way to simulate cointegrated prices?
8
votes
3answers
257 views

Are there any standard techniques for adding realistic synthetic microstructure noise to a price series?

This may seem like a strange question, but for my particular application we need to actually add synthetic microstructure noise to real time charts. The signal should still be representative of the ...
13
votes
3answers
926 views

How to account for transaction costs in a simulated market environment?

I am simulating a market for my trading system. I have no ask-bid prices in my dataset and use adjusted close for both buy and sell price. To account for this I plan to use a relative transaction ...
5
votes
1answer
1k views

How to simulate correlated assets for illustrating portfolio diversification?

I have seen multiple instances where people try to explain the diversification effects of having assets with a certain level of correlation, especially in the "most diversified portfolio" literature. ...
8
votes
3answers
537 views

How to test for and how to simulate price rise/fall asymmetry in the stock market

One of the stylized facts of financial time series seems to be a fundamental asymmetry between smooth upward movements over longer periods of time followed by abrupt declines over relatively shorter ...
7
votes
1answer
607 views

Simulating conditional expectations

There is a multidimensional process X defined via its SDE (we can assume that its a diffusion type process), and lets define another process by $g_t = E[G(X_T)|X_t]$ for $t\leq T$. I would like to ...
7
votes
1answer
357 views

How to reduce variance in a Cox-Ingersoll-Ross Monte Carlo simulation?

I am working out a numerical integral for option pricing in which I'm simulating an interest rate process using a Cox-Ingersoll-Ross process. Each step in my Monte Carlo generated path is a ...
11
votes
6answers
2k views

How to generate a random price series with a specified range and correlation with an actual price?

I want to generate a mock price series. I want it to be within a certain range and have a defined correlation with the original price series. If I choose, say, oil, I want as many time series which ...
8
votes
1answer
651 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 ...
10
votes
3answers
891 views

Literature on generating synthetic time series for testing

I have some market data (daily time series) for bond prices and CDS indices and I would like to generate synthetic versions of these which are statistically "similar" for testing trading strategies. ...
6
votes
1answer
182 views

What tradeoff is there to using an accurate estimate with a large confidence interval?

I am working on calibrating a Heston model from simulated historical stock data. After obtaining an accurate estimate of the model parameters I found very large 95% confidence intervals for these ...
3
votes
1answer
1k views

Valuing Total Return Swaps

In my quest for simulated data, I am trying to generate prices for Total Return Swaps by calculating the NPVs of the fixed and floating leg. My problem: Given the fixed leg, how do I set the spread on ...
10
votes
2answers
1k views

Simulating Returns

I'll start this off with a rather broad question: I am trying to simulate returns of a large number of assets within a portfolio of different classes - equity and fixed income in a first step, say 100 ...
9
votes
2answers
649 views

Is Walk Forward Analysis a good method to estimate the edge of a trading system?

Do you think Walk Forward Analysis is a good method to estimate the predictability or edge of a trading system? Are there similar methods to know (estimate) how much alpha can capture an algo (in the ...
11
votes
1answer
319 views

Enhancing Monte-Carlo convergence (crude method)

I am currently doing a project involving Monte-Carlo method. I wonder if there is papers dealing with a "learning" refinement method to enhance the MC-convergence, example : Objective : estimate of ...