The theory tag has no wiki summary.
5
votes
1answer
155 views
Toy models of asset returns
When making simple agent-based models of banking systems to look at global properties (say systemic risk) one of the basic decisions you have to make is how to model returns on external (to the ...
2
votes
3answers
275 views
Why should there be an equity risk premium?
After years of mathematical finance I am still not satisfied with the idea of a risk premium in the case of stocks.
I agree that (often) there is a premium for long dated bonds, illiquid bonds or ...
8
votes
7answers
732 views
Has spectrum analysis ever been used successfully to analyse historical price data?
Spectrum analysis is often used to analyse waveforms. A common configuration, for example, is to create a graph where X is time, Y is frequency, and the brightness of each position represents ...
2
votes
1answer
322 views
What are some “Must Know” investment/portfolio management theories out there?
What are the most important portfolio management theories you must know in order to competently manage an investment portfolio?
In order to keep the topic focused, I would like to narrow down the set ...
19
votes
5answers
2k views
Why is an inverted yield curve a problem?
Immediately preceding the worst of the financial crisis, my professors all pointed out to me that the yield curve had inverted -- short-term yields were more risky than 20-year or 30-year Treasury ...
7
votes
2answers
655 views
Why doesn't Black-Scholes work in discrete time?
I have a question considering Financial markets in discrete Time:
One of the main theorems in discrete time is:
In finite discrete Time with trading times t={1,...,T} the following are equivallent:
...
11
votes
3answers
438 views
Empirical or theoretical quant insights that have shaped your thinking?
What are some quant theoretical or empirical insights that have shaped your thinking or provided a deeper conceptual basis for explaining returns and risk?
14
votes
3answers
1k views
Why hold options when you can dynamically replicate their payoff?
When holding vanilla options, you can cancel out, theoretically, all risk with dynamic (delta) hedging. Then you earn the "risk free rate of return".
Why would you make such a portfolio when you can ...
2
votes
1answer
168 views
How to quantify the impact of management cost on return?
Suppose funds X and Y are the same but X has 0.25% higher management cost. Suppose we are analyzing a 2 year interval. The simple models with discrete/continuous interval -assumptions are not really ...
6
votes
1answer
1k views
How do I reproduce the cross-sectional regression in “Intraday Patterns in the Cross-section of Stock Returns”?
Recently I was trying to reproduce the results of "Intraday Patterns in the Cross-section of Stock Returns". The authors used cross-sectional regression to determine which intraday lags have ...
48
votes
15answers
3k views
What concepts are the most dangerous ones in quantitative finance work?
There are a few things that form the common canon of education in (quantitative) finance, yet everybody knows they are not exactly true, useful, well-behaved, or empirically supported.
So here is the ...
13
votes
3answers
1k views
Is there any theoretical basis for pattern-recognition strategies?
Mean-reversion and trend-following strategies have some kind of a theory behind them that explains why they might work, if implemented well. Pattern-recognition, on the other hand, seems like nothing ...
