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Jun
24
revised Multi Fractals Models
added 65 characters in body
Jun
24
answered Multi Fractals Models
Jun
24
comment Can the equity premium puzzle be explained by volatility-induced financial growth?
Had a closer look at the paper and it again shows how most any engineer, mathematician, or computer science major can analyze time series without knowing a thing about financial markets. Their "surprising" results that volatility can be interpreted as risk but also as a driver for more market participation and a surge in equity markets is one of the most basic principles in finance, something every new grad learns in the first week "on the desk". Number for Japan just came out, Japanese retail participation increased from 29% to 43% in May due to Nikkei volatility.
Jun
23
comment Can the equity premium puzzle be explained by volatility-induced financial growth?
No,no, and no. Equity returns are higher than treasury bond return because of the higher real risk of a host of risk components. They are also higher than the same company corporate bond for reasons of subordination. Glancing over references such as this give me a stomachache because it shows such utter disregard for the basics of financial market dynamics while trying to blow up a paper with complicated terms to sound academically sophisticated.
Jun
21
comment What is the analytic value of an asset's risk contribution, if $n=2$?
@SRXX, again that was just an idea, I am not familiar with ERC, not even with what it stands for. But what I see from your derivation is that the contribution of asset 1 is a function of variance of asset 2 which makes little to no sense to me. And I think GusRustam is saying the same thing in different "words".
Jun
21
comment Models for simulating FX movements
I cannot say more than recommending you again to look at a multi-factor model with parameters fit to past currency return dynamics. Please do report back your findings after playing with some of the factors, I would be curious about your work.
Jun
21
comment What is the analytic value of an asset's risk contribution, if $n=2$?
this is what it says in your referenced paper: "We voluntary restrict ourselves to cases without short selling, that is 0 <= x <= 1."
Jun
21
comment What is the analytic value of an asset's risk contribution, if $n=2$?
I am not familiar with his paper but at first glance his restriction is that no short positions are allowed. Again I have not walked through all the derivations so I am not positive whether this will impact the result but fact is that such restriction (to my knowledge) is not imposed on the typical Markowitz portfolio construction. Just wanted to point this out in case. It may or may not help thus I did not formulate it as answer and just a comment.
Jun
21
revised if market is always assumed right, what happened when LIBOR was manupulated?
added 155 characters in body
Jun
21
answered if market is always assumed right, what happened when LIBOR was manupulated?
Jun
20
revised How to estimate real-world probabilities
added 560 characters in body
Jun
20
comment How to estimate real-world probabilities
Fair, though I wanted to stress that risk neutral probabilities and estimating the probability of an asset with non-contingent payoff reaching certain thresholds are two very different and unrelated exercises. But will try to elaborate. Thanks
Jun
20
comment How to statistically compare the pricing errors of various option pricing models?
why doing it so complicated? You have three prices which you ought to track vs market prices. I would rather run a set of simple tracking statistics to express the average deviation (standard error/tracking error), min/max deviations, duration of deviations and such forth. A model such as DM forces you to accept whatever "scoring algorithm" they determine best whereas you may want to look at the whole picture. Just my 2 cents.
Jun
20
comment Does YTM represent interest?
en.wikipedia.org/wiki/Yield_to_maturity
Jun
20
comment Difference between google finance and yahoo finance?
I rather work on a multivariate brownian motion problem than answer this. Such kind of data cleansing or data filling is a nasty and very time consuming issue. I would have suggested checking your dates (as you use a German version for yahoo and maybe you ended up requesting 6/2, 2008 vs 2/6/2008 data) but then the opening price is identical. Good luck! In general keep in mind this is not Bloomberg, and you always get what you.......
Jun
20
answered How to estimate real-world probabilities
Jun
20
comment Models for simulating FX movements
...well then just specify a model based on fundamentals. Use the usual suspects such as short term rate, 1-5/1-10 spreads, gdp growth, employment, trade balance, throw in some qualitative factors such as "war-risk", "qantitative easing risk" (lol, forget that last one), and fit this multifactor model to past fx rates and see what you get. You can google "currency forecasting pdf" and should find tons of papers.
Jun
20
comment Models for simulating FX movements
...why I said that? Because forecasting future asset prices with volatility patterns such as currencies a year out is all but throwing darts blindfolded. There are many animals in this industry, however, 90-95% are those little fish that stay close to the primal hunter who generates reliable alpha for the rest. I probably have come across 10 analysts that I find noteworthy of reading and listening to out of at least 500-800 I got in contact with over the past 10 years.
Jun
20
comment Models for simulating FX movements
Ok, I tell you how it is, then you can still dig out the annual Bloomberg article on the top fx forecasters. You put 200 apes into a room. You ask each of them where they see USDJPY a year from now. A year later you find out that 10/200 apes were relatively close in their estimate to the actual rate. Same game repeated...a year later 1/10 again hits the jackpot. That guy is pronounced the king of fx analysts. Chance? Talent? I chuckle each time I come across the same spiel. If I saw the same guy in the top 3 over 5-10 years I would resort it to talen but not 1-2 data observations.
Jun
20
comment Models for simulating FX movements
@following your edit, could you please pose a specific example. What do you mean with "instrument"? Your worst case is a perfect correlation of your "instrument" with the "foreign" currency you receive back in x years and if I understand correctly you look to model the future paths of that currency? Worst case then is a massive devaluation of such currency vs your base currency. You can use an fx model to simulate such paths but I tell you upfront that you will not gain much with that. Long-term fx rates are heavily a function of fundamentals such as monetary policy, nations' debt servicing...