# Tag Info

0

When you are solving for the local vol in the non mean reverting model, you will find that it also depends on strike. Thus, you can only match vanilla options prices between the two models for a single strike. Let's say that you pick a strike K>0 for which you match the vanilla option price. The you will find that for strike B, where B>K, the mean ...

0

Kalman filter (or similar methods) are quite well suited to deal with observations that are of different sampling frequencies and/or asynchronous.

7

Having thought about this I think the following reason is also important and wasn't mentioned so far: When you look at the inner working of this whole class of econometric models it all boils down to the following: It is possible (under some reasonable assumptions) to express any $MA(q)$ model as an $AR(\infty)$ model (and vice-versa for expressing $AR(p)$ ...

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Traditional econometric (time series) models are of little or no value in forecasting market prices for purposes of "making money", i.e, generating excess return over a benchmark in an asset management setting. They have some limited value in strategic and tactical asset allocation. The ineffectiveness of time-series modeling in asset management stems ...

18

It's an interesting question. I particularly agree with the $\mathbb{Q}-\mathbb{P}$ dichotomy mentioned by many. I would add to the other answers that, come to think of it, the Black-Scholes postulated Geometric Brownian Motion could be interpreted as an AR(1) process on the logarithm of the stock price as you discretise the SDE from which it is a ...

6

My answer is very much in the spirit of Kiwiakos' answer. E.g. in this paper (where I am one of the coauthors) we use VMA (vector moving average) models (in the multivariate case) and AR models in the univariate case to calculate proper scaling of volatility or its contributions if there are (cross-) auto-correlations. This happens in the P world due to ...

11

I think you need to differentiate between Q-quants vs P-quants. The former might not use Econometrics, but P-quants use them a lot.

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