The tag has no usage guidance.

learn more… | top users | synonyms

6
votes
1answer
254 views

Variance replication using options

I would like to understand the intuition behind the following question: Why a certain weighted sum of prices of put and calls is equivalent to the implied variance of an underlying? A variance swap ...
35
votes
9answers
3k views

Lévy alpha-stable distribution and modelling of stock prices.

Since Mandelbrot, Fama and others have performed seminal work on the topic, it has been suspected that stock price fluctuations can be more appropriately modeled using Lévy alpha-stable distrbutions ...
5
votes
2answers
464 views

Choice of prior as a shrinkage target in portfolio construction?

There's various research showing how priors such as the minimum variance portfolio turn out to be a surprisingly effective shrinkage target in portfolio construction. The sell point of these priors ...
19
votes
7answers
31k views

What is the difference between volatility and variance?

How do volatility and variance differ in finance and what do both imply about the movement of an underlying?
1
vote
1answer
344 views

Calculating Variance Explained from PCA Loadings

I have a return history for a universe of risky assets and I've run a principal component algorithm and obtained a loadings matrix (num_factors by num_assets) for the first 5 factors. I have a ...