Tag Info

Hot answers tagged

3

I would argue that indeed none of the so-called stylized facts you mentioned can be explained by classical economic theory. That there was a gross delta between the predictions of classical economic theory and empirical data was foremost found out by Benoit Mandelbrot as far back as 1963 in his seminal paper: The Variation of Certain Speculative Prices In ...


2

For the general solution in the case where $f$ is not a constant, note that, from the SDE \begin{align*} dx_t = \theta(f(t)-x_t)dt + \sigma dW_t, \end{align*} we obtain that \begin{align*} d\big(e^{\theta t} x_t \big) = \theta e^{\theta t} f(t)dt + \sigma e^{\theta t} dW_t. \end{align*} Then \begin{align*} e^{\theta t} x_t = x_0 + \int_0^t \theta e^{\theta ...


2

You can just take expectations on both sides of your SDE/corresponding integral equation and obtain an ODE on the expectation function $m_t = \Bbb E[x_t]$: $$ \dot m = \theta(f - m) $$ which you can easily solve using ansatz $m_t = c_t \mathrm e^{-\theta t}$ which brings you to $$ m_t = x_0\mathrm e^{-\theta t} + \theta\cdot\int_0^tf(s)\mathrm ...


2

I think there is a slight misconception into the purpose of an economic theory. The market is a complex entity to be modeled and yes, it is neither efficient nor arbitrage free but it is trading and there is a price process that corresponds to the market one. You could say that classical economic theory has failed, but I would argue the idea of a theory is ...


2

I think the only valid answer is you can't. The techniques you describe would work of the signal was much stronger than the noise but it seems that with your fund returns this is not the case. You could try to get more data or look at other risk measures like max drawdown to get some idea of the risks involved.


1

The rating downgrade/upgrade effect is definitely more extreme during financial crisis, because of several effects (among all, flight-to quality, flight-to-liquidity and news effects itself), as shown by: Arezki, Rabah, Bertrand Candelon, and Amadou Nicolas Racine Sy. "Sovereign rating news and financial markets spillovers: Evidence from the European ...


1

According to me, you should be consider the use of the fractal distribuion/law power distribution in risk management. Currently, those topics are up-to-date in the risk management area and, more generally, in finance since those probability distribution should predict financial risks better than actually the Normal distribution do (see, e.g., the fat-tails ...


1

50 elements input vector is actually a small one. For example, in this tutorial the size of the input vector is 784 (parameter 'nvis'). So your problem lies somewhere else. I would recommend to start from taking these two courses on Coursera: Neural Networks for Machine Learning Machine Learning They will provide you with some practical guidance ...


1

Yes and no :-) Portfolio VaR = CV1 + CV2 + CV3 + CV4 is correct. To safeguard my answer, I looked this up from thinxlabs.com The individual component VaRs from the assets in the portfolio should add up tho the total portfolio VaR. The equation is as follows. But you need to calculate another VaR for each account, if you want to use CV on those. The ...


1

Classical economics cannot "explain" volatility smiles, but neither does it preclude their existence. Economics is far more abstract than financial "quant"modeling and answers very different questions. In the more abstract framework of economics, volatility skew, mean reverting volatility, bubbles, and crashes are all conceivable scenarios. ...


1

You said that the PX_BID and PX_ASK values are dependent upon when you pulled the data. But if I pull historical data (e.g. for the last month) only the value of today would be changing but not the past ones... So there should be a point of time when the final PX_BID and PX_ASK values for a day are calculated. Or am I wrong?


1

Recently I found a book on earnings trading but did not have time to read thoroughly. Trading on Corporate Earnings News - John Shon I also had spent some time to see earnings surprise effects and it is a quite interesting but not easy to use topic. There is certainly a jump if the estimates and announced earnings have a large mismatch but the magnitude ...



Only top voted, non community-wiki answers of a minimum length are eligible