# Tagged Questions

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1answer
25 views

### Explain Four Basic Axioms of Maximising Expected Utility

I begin learn PRM , Someone help me understand Four Basic Axioms of Maximising Expected Utility most intuitive way .Thank you very much
15answers
8k 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 ...
3answers
567 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 ...
0answers
37 views

### Exponentially weighted random matrix - which variance should I use?

I am currently playing around with exponentially weighted correlation matrices and filtering based on Random Matrix Theory. However, there is one thing I am not really sure about: In the equation ...
1answer
2k 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" (published in the Journal of Finance 2010). The authors used cross-sectional regression to ...
0answers
192 views

### Here is an approach for measuring Data Snooping; is it new?

I came up with an approach for measuring data snooping, or overfitting. My question is whether this approach was published and expanded-on already, or is it new? My approach relies on the observation ...
0answers
52 views

### Show that in an arbitrage-free and non-redundant market a certain set is compact

Some notation: We consider a financial market with $d+1$ assets, the $0$-th asset is considered the risk-free asset, the others are the risky ones. The vector $\overline \pi \in \mathbb R^{d+1}$ ...
1answer
190 views

### Can a null be inconclusive? [closed]

My Null for the T-test is h0: -tcritical < Tstat < +tcritical I require confidence level of 95%. If my empirical result satisfies the null, but not my p-value requirements, does this mean ...
0answers
140 views

### What are the roles of “Game theory” and “optimisation (linear, integer, conic)” in Finance, Mathematical Finance? [closed]

Would you please give me some information about application of "Game theory" and "Optimisation" in Finance and Mathematical Finance? which is more important to know and learn? How about "multi-...
3answers
785 views

### What should I put on a math finance cheat sheet?

What are the most useful results that I should put on a mathematical finance cheat sheet? Am I missing anything important: https://github.com/daleroberts/math-finance-cheat-sheet
1answer
121 views

### Is the volatility of a trader's wealth equal to the volatility of the underlying assets traded?

Assume that a trader trades in several stocks with different volatilities. The return of the trader's portfolio would be the weighted average of returns and the risk would be a function of the the ...
1answer
306 views

### Definition of orthogonality and independence for a stochastic processes

Somehow I can't find the explicit definition of when two processes are supposed to be orthogonal or independent anywhere. I think orthogonality and independence should mean the same thing in this ...
0answers
45 views

### Characterizing relation “ has no less information than” between information systems represented by Markovian matrices

I crossposted this question on math.stackexchange. Background: Suppose that an investor's utility is both determined by the state and her action taken. A fact of life is that she can't observe the ...
1answer
147 views

### What's the underlying idea of definition of constrained market in Skiadas' Asset Pricing Theory?

I'm self-studying Skiadas' Asset Pricing Theory, and find the definition of constrained market on page 21 confusing(you can find it here in the sample chapter). Deﬁnition 1.26. A constrained ...
2answers
613 views

### Is it possible to understand financial theory without mathematics?

I am trying to develop a short course on financial theory, covering the fundamentals of forward and options pricing, and 'efficient market' theory. I want to reduce the amount of mathematics to a ...
8answers
3k 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 ...
6answers
9k 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 ...
1answer
405 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 ...
3answers
671 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?
2answers
1k 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: ...
1answer
450 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 ...
1answer
216 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 ...
3answers
5k 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 ...
3answers
3k 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 ...