# All Questions

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### How do different methods and techniques used in pairs trading compare?

I was going through the paper of Avellaneda (2008) on stat arb and I found it interesting that he uses asset returns vs. their respective ETFs to compute the s-score. I am wondering if anyone has ...
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### How to show that this weak scheme is a cubature scheme?

Weak schemes, such as Ninomiya-Victoir or Ninomiya-Ninomiya, are typically used for discretization of stochastic volatility models such as the Heston Model. Can anyone familiar with Cubature on ...
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### Measuring Behavioral Finance Effects in Fund/Portfolio Manager Analysis

I want to know if there are some standardized measures to evaluate how irrationally human a portfolio manager is. Are there any performance measures or scorings for behavioral finance effects? How ...
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A binary option with payout \$0/\$100 is trading at \$30 with 12 hours to expiration. Assuming the underlying follows a geometric Brownian motion (hence volatility remains constant), what ... 0answers 225 views ### Transformation of Volatility - BS I have recently seen a paper about the Boeing approach that replaces the "normal" Stdev in the BS formula with the Stdev \sigma'=\sqrt{\frac{ln(1+\frac{\sigma}{\mu})^{2}}{t}} ... 0answers 71 views ### Proving the asymptotic distribution of Manipulation-Proof Performance Measure (MPPM) (Paper by Goetzmann et al.) In Goetzmann et al.'s (2007) paper, the authors derive a "Manipulation-Proof Performance Measure" (MPPM), which is a performance measure that is impervious to performance manipulation by fund ... 0answers 180 views ### What good papers of short term (<30 seconds) volatility estimation I am looking for good papers of short term (<30 sec) volatility estimation AND short term volatility forecasting. Do you have something in mind ? 0answers 151 views ### Examples of Spectral Risk Measures Let's take the usual definition of a spectral risk measure. If we look at the integral we see that spectral risk measures have the property that the risk measure of a random variable$X$can be ... 0answers 130 views ### Implied term structure from risky discount curve: does it make sense? We know that, taken every discount curve, it's possible to calculate its forward rates according to our tenor preferences. We know also that it's actually possible to extract an implied term ... 0answers 171 views ### Time series analysis on illiquid price data? Say for example I have the following company in some specialized industry: A - Company that is about to be listed in Exchange 1, i.e., no price history B - Company that produce similar products as ... 0answers 148 views ### Testing the validity of a factor model for stock returns Consider the following m regression equation system: $$r^i = X^i \beta^i + \epsilon^i \;\;\; \text{for} \;i=1,2,3,..,n$$ where$r^i$is a$(T\times 1)$vector of the T observations of the dependent ... 0answers 206 views ### What are modern algorithms for trade classification? When dealing with trade data, for example from TAQ, a common problem is that of determining whether a trade was a buy or a sell. The most commonly used classifier is the Lee-Ready algorithm (Inferring ... 0answers 440 views ### Tools/R code for predicting Dragon-Kings The theory of the so called Dragon-Kings, esp. by Didier Sornette (ETH Zürich), basically states that financial crises and crashes are predictable (contrary to the theory of black swans). The ... 0answers 121 views ### Covariance estimation Shrinkage was much en-vogue before RMT took everybody's attention, however the latter also showed its limits. A plethora of other estimators has been presented, but I could not yet spot a golden ... 0answers 144 views ### How to prove that markets are incomplete under the Stochastic Volatility model? Has anyone ever formally proved that Markets are incomplete under the stochastic volatility model? I know that if there are more random sources than traded assets, then the market is incomplete but ... 0answers 241 views ### Distribution of profit/loss for retail traders in FX I've heard that 90% of retail investors in FX lose money. I want to analyze this in more detail. Question: Is there some literature that describes the statistics of profit/loss for retail traders in ... 0answers 148 views ### Stress testing covariance Going one level beyond stressed scenarios, to parameters e.g. for a VaR measure: what are the most common approaches for stressing a covariance/correlation matrix, especially taking portfolio exposure ... 0answers 451 views ### VaR model Unconditional Coverage Tests: Is this extension of Kupiec POF test correct? Background: Kupiec P. in 1995, published paper "Techniques for Verifying the Accuracy of Risk Management Models" on Journal of Derivatives, v3, P73-84, it's a Unconditional Coverage Tests designe for ... 0answers 96 views ### How to perform Empirical Mode Decomposition? I am trying to use the EMD applied to EURUSD open price to train a machine learning algo (RVM). I have run only once the EMD on my training set and once on the training+test set. The results on the ... 0answers 268 views ### option chain data visualization, sunburst I think option chains are not represented in the best way. With more and more options products coming out and trading on the various exchanges, I see vendors struggling to keep up with a good way to ... 0answers 234 views ### Alternative ways to understand time-varying comovement between two time-series? I have been looking into ways to better understand how the dependencies/correlations/etc between two time series can vary over time. I first thought about using a Kalman/particle filter over a ... 0answers 166 views ### How to build an electricity portfolio for an electricity production company? I am referring to an electricity production company. Company is located in AsiaPac. The power is generated using Natural Gas fired combined-cycle power plants. Then this electricity is distributed to ... 0answers 127 views ### Replicating portfolio and risk-neutral pricing for interest rate options For equity options, the pricing of options depends on the existence of a replicating portfolio, so you can price the option as the constituents of that replicating portfolio. However, I am not seeing ... 0answers 128 views ### Testing for stock market herding over short periods The literature has well established methods for testing stock market herding over a decent time window. Are there any ways that have appeared in the literature to test for stock market herding over ... 0answers 217 views ### Can Hurst exponent be used to characterize nonlinear dependence in time series? It appears to me that the answer is no, because Hurst exponent measures persistence in terms of autocorrelation, which is a linear measure. So even if a time series of asset returns is driven by ... 0answers 209 views ### generating (or tracking) the DJUBS commodity index Dow Jones and UBS publish one of the most popular commodity index families, the Dow Jones-UBS Commodity Index and its subindices. They provide a detailed manual describing the composition of the index ... 0answers 374 views ### What is the correct procedure to choose the lag when preforming Johansen cointegration test? When preforming Johansen cointegration test for 2 time series (the simple case) you need to decide the lag you want to use. Doing the test for different lag levels returns different results: for some ... 0answers 512 views ### Alternative to Block Bootstrap for Multivariate Time Series I currently use the following process for bootstrapping a multivariate time series in R: Determine block sizes - run the function b.star in the np package which produces a block size for each series ... 0answers 170 views ### Algorithm to fit AR(1)/GARCH(1,1) model of log-returns I am fitting numerically an AR(1)/GARCH(1,1) process to index and stock log-returns,$r_t=\log(P_t/P_{t-1})$, where$P_t$is the price at time$t$, and thus far am not clear on where the observed log ... 0answers 76 views ### Applications of distance correlation This question mentions distance correlation. Where has this concept been applied to financial data and provided new insight? Do you know any examples or references? 0answers 85 views ### How to test that a distribution has infinite mean? I observe a sample from a distribution that I expect to be the hitting time $$\tau = \inf\{t>0| X(t)>a\}$$ where$X(t)$is a Lévy process with$X(0)=0$and$a$is some constant.$X$is not a ... 0answers 62 views ### Risk neutral measure in exponential levy model Is there a method of finding a risk-neutral measure for assets driven by the levy process? I understand there is the esscher transform but I think it tends to transform the processes into ... 0answers 80 views ### Basket option density in BS model Let X and Y be two GBM’s, they have each a univariate log-normal distribution for some time t, that is$X_t\sim{LnN(µ_x, σ^2_x)}$,$Y_t\sim{LnN(µ_y, σ^2_y})$and$Z_t=[X_t,Y_t]\sim{ MvLnN(μ, Σ)}$... 0answers 186 views ### Shrinkage Estimator for Newey-West Covariance Matrix I like to apply the Newey-West covariance estimator for portfolio optmization which is given by $$\Sigma = \Sigma(0) + \frac12 \left (\Sigma(1) + \Sigma(1)^T \right),$$ where$\Sigma(i)$is the lag ... 0answers 150 views ### Value-at-Risk formula when using skewed-t distribution I am trying to find a formula for the skewed-t VaR. For example the VaR formula for a t-distribution is$$\sqrt{\frac{df-2}{df}} \times \Sigma{t} \times \mbox{quantitle}(t-\mbox{dist}, 0.01) + \mu ... 0answers 80 views ### Simple way to get the crossing probabilities of a moving barrier Hello Quant Finance StackExchange, Is there a simple way to find the crossing probabilities of a moving barrier, namely a barrier written in the form$U(t)=\alpha_1t^2 + \beta_1t + \gamma_1\$ and ...

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