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Mar
30
comment Best written quantitative finance papers
Hi, i am not quite sure if the question is on topic here but I like it a lot and I think we should give it a chance! As for the question: Could you specify what audience you are writing for? In the academic literature, there is a quite standardized procedure about how to write things, at least structurally. If you write for a broader audience without experience in the field I suppose it is a lot trickier.
Mar
10
comment Book on market microstructure
Strange indeed as your answer is more in depth (as far as the first four references are concerned and you are an author of the book suggested. :-)
Mar
5
comment How to assess stock price movement from implied volatility?
@Victor123 The calculation is correct. For me, the problem with this calculation is that the volatility is a point on the volatility surface and the result not only depends on the moneyness (which you specified) but also on the term of the option. For a stock, you would typically give ONE volatility number OR concentrate on the investment horizon (here, you should probably take an appropriate value for "time to maturity" on the volatility surface). Maybe its better to calculate the stock's volatility directly if possible.
Mar
4
comment What to use as portfolio diversification measure?
@Richard I can fix you up in the meantime: papers.ssrn.com/sol3/papers.cfm?abstract_id=2276632
Feb
25
revised Markowitz Mean-Variance Implied Returns
added 1 character in body
Feb
25
revised Markowitz Mean-Variance Implied Returns
corrected author name
Feb
10
comment Why do we usually model returns and not prices?
I dont have time to formulate an answer right now but I recommend the "Quest for Invariance" article by Meucci. The basic principle is: You need to look for an iid distributed "invariant". This obviously cant be the prices. Most people consider stock returns as more or less iid, thats why we use them. They are the invariants. Others use time series models to explain the distribution in more detail. Here, its the innovations $\epsilon$ who are the invariants (iid). For options for example, returns are of little use. We use the implied vol surface to get one of the invariants.
Feb
5
comment Portfolio choice problem of a CARA investor with n risky assets
Hi! Could you post the reference to your book? Firstly, the derivative is wrong. It should be : $\mu + \frac{\alpha}{2}\Sigma \phi = 0$ (a vector equation: in your version, $1^\prime \mu$ is a salar, $\Sigma\phi$ is a vector). Secondly, you didnt incorporate the budget constraint. My guess is that it comes into the utility function via a Lagrange method.
Feb
4
comment Covariance matrix and Cholesky decomposition
@crunch Yes, definitely. Also, $LL^T$ does not have to be SPD for this definition. Thats probably a reason to define it this way: Its defines a broader class of distributions (because $\Sigma$ does NOT have to be SPD).
Feb
4
comment Comparing cost of two alternative given their distribution
@Mohsen There are many ways to formulate a utility function for a risk averse investor. In the general case you cant even be sure the distributions have fininte variance! You can look into the topics of first order and, probably more relevant, second order stochastic dominance. This would include a big class of utility functions. Another way would be too look at utlity functions that include a risk measure of your choice that does not explicitly use variance such as value at risk or interquartile range and rank the alternatives accordingly.
Feb
4
answered Covariance matrix and Cholesky decomposition
Jan
29
comment VIX For Convertible Bonds
Hi, I don't know of such an index but you could try to calculate an index yourself. In the VIX whitepaper, you can see the calculation methodology: cboe.com/micro/vix/vixwhite.pdf I think one of the problems is that the built-in options in convertible bonds all have different underlyings and are usually not of plain vanilla type. Just look at 3-5 random prospectus of convertible bonds - you will usually find lots of different trigger levels and optionalities. That makes it harder to compare the options in two different convertible bonds let alone a whole CB index.
Jan
20
reviewed Approve Using the R package “ termstrc ”
Jan
16
awarded  Popular Question
Jan
15
comment Law of large numbers necessary for APT derivation?
To upvote and accept your answer I had to edit it first so I added the resource. Your explanation is not different from the paper but my question was aiming at something different. The shanken paper answered it though. What confused me was that the APT equation is only an approximate result! (which is unusual for an arbitrage argument and very seldomly stressed in the literature) Of course, $x^\prime \varepsilon=0$ can never hold for independent $\varepsilon_i$ and thus there will never be an arbitrage portfolio, even if arbitrage possibilities are present.
Jan
15
accepted Law of large numbers necessary for APT derivation?
Jan
15
revised Law of large numbers necessary for APT derivation?
added the paper so i can upvote and accept the answer
Jan
14
reviewed Approve How do I specify Thirty360::European day counter in RQuantLib
Jan
14
comment Law of large numbers necessary for APT derivation?
I am sorry I have to downvote this answer. To get the APT relation you could simply assume $x^\prime \varepsilon = 0$ for an arbitrage portfolio... If you think its about the assumptions, feel free to be more specific about "some extent making assumptions of linear regression". Please also explain in detail where these assumptions are needed and how they imply the need for the law of large numbers with respect to the no-arbitrage argument!
Jan
13
revised Law of large numbers necessary for APT derivation?
added 30 characters in body