285 reputation
15
bio website
location
age
visits member for 1 year, 6 months
seen Dec 18 '12 at 17:04

Nov
16
comment Proof that the number of trades done (successfully) matters for whether or not a strategy was lucky
"Take a dice." Maybe it's one of my pet peeves, but I almost stopped reading there. Dice are plural. Die is singular. :-(
Nov
15
comment Why is the CAPM securities market line straight?
Thank you! You've explained it very well for me. Sorry, not registered can't upvote for now.
Nov
15
comment Why is the CAPM securities market line straight?
Fama French has more factors, but it's still a straight-line model.
Nov
13
comment How do you explain the volatility smile in the Black-Scholes framework?
@JoeCoderGuy You might want to check this article out: Shalom Benaim and Peter Friz. Smile Asymptotics II: Models with Known Moment Generating Functions. Journal of Applied Probability , Vol. 45, No. 1 (Mar., 2008), pp. 16-32
Nov
10
comment How do you explain the volatility smile in the Black-Scholes framework?
I have to disagree that down-side return volatility is much higher than up-side return volatility---historical returns are in fact negatively skewed, but only slightly. If you look at actual data, you will find many extreme upside moves to balance the downside.
Nov
10
comment How do you explain the volatility smile in the Black-Scholes framework?
The double-sided exponential distribution happens to be the fattest-tailed distribution that has a moment-generating function---but just barely---its mgf has vertical asymptotes which may impair one's ability to derive an equivalent martingale distribution (of the same exponential family) suitable for pricing options as in the Black-Scholes model.
Nov
10
comment How do you explain the volatility smile in the Black-Scholes framework?
Just did what you said --- I was curious myself --- the returns are quite leptokurtic, not normal.
Nov
5
comment How do I evaluate the suitability of a GARCH model?
That's for the simplest AR model. You're looking for the smallest possible q that adequately explains the data with any given model. That's all.
Nov
2
comment Individual/casual investors and the bias towards blue-chip stocks?
I said the bias is not limited to individual/casual investors. Institutional investors have a bias toward large caps, as well, for their own reasons. It's the stocks that the market as a whole is biased against that are going to do better.
Nov
1
comment Individual/casual investors and the bias towards blue-chip stocks?
I think Fama and French en.wikipedia.org/wiki/Fama%E2%80%93French_three-factor_model have found evidence for such a bias. Not just individual/casual investors either. Namely they found that small cap outperforms big, and value outperforms growth. (I think it's likely that stocks with high visibility characteristics and "positive skewness" do tend to be growth stocks, though.) Data on the fraction of institutional ownership for stocks is fairly easily obtainable, too.
Nov
1
comment How to generate a random price series with a specified range and correlation with an actual price?
So you wanted to bootstrap your original price series... en.wikipedia.org/wiki/Bootstrapping_%28statistics%29 ...interesting that the answers do that in the frequency domain.
Oct
20
comment Why the interest rate for put-call parity is not constant?
Well here's an exercise for you @Strange one. Buy a call 1000 and sell a covered call 1500. Then buy a put 1500 and sell a secured put 1000. What did that all just cost you net, and what's it going to be worth come expiration time? Can you figure out the interest rate from that?
Oct
19
comment Why the interest rate for put-call parity is not constant?
No. $\frac D {strike}$ is different for every strike, not $D$ itself. Whatever the market expects dividends to be, that's what they're expected to be, regardless of options.
Oct
18
comment Why the interest rate for put-call parity is not constant?
@John Dividend is the same across the board, but of course "dividend/strike price" is higher for lower strike price.
Oct
17
comment Why the interest rate for put-call parity is not constant?
@John it still doesn't matter whether or not the dividend yield is higher for a lower stock price.
Oct
16
comment Why the interest rate for put-call parity is not constant?
@John Dividends have nothing to do with strike price.