Yugmorf

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Systematic trader


13 Comments

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Jan
15
 comment What data transformations to use in regression of credit spreads on equity prices?
Thanks for your good sense advice!
Jan
15
 comment What data transformations to use in regression of credit spreads on equity prices?
@Brian. In such cases does it make sense to instead convert all variables to ranks, or signed ranks, and run a linear regression using the ranked variables? My thinking that this might clear out some of the non-linearity. Can one use GARCH on ranked data?
Jan
11
 comment What data transformations to use in regression of credit spreads on equity prices?
no lags. the principal components will depend on my regression structure, right? i'm still getting my head around how to get into a linear form.
Jan
10
 comment What data transformations to use in regression of credit spreads on equity prices?
That's a fair point and while it probably holds over short horizons, it won't over longer periods. The coefficient on changes in vix also depends on the level of credit spreads. How would you think about transforming the data to stabilize the coefficient across both high a low credit spread periods?
Jan
10
 comment What data transformations to use in regression of credit spreads on equity prices?
Normalizing SPX returns by it's own historical sd is one approach. But since we have a market price of this sd (VIX) then why not use that? But, you're arguing that it should be included as an 'independent' variable instead. I'm wondering if such regression has different structural form since whereas normalization puts volatility in the denominator of each variable (eg dSPX/SPX vol), adding implied vols as independent variables proposes a different structure (ie linear rather than powers or ratios). Is it valid to run linear regression in both of these two cases?
Jan
10
 comment What data transformations to use in regression of credit spreads on equity prices?
@John. When the level of credit spreads is high, then the sensitivity of changes in credit spreads to changes equity prices is high, and vice versa when credit spreads are low. Doesn't this beg for some kind of transformation?
Jan
10
 comment What data transformations to use in regression of credit spreads on equity prices?
@Freddy. I was thinking to normalize using implied volatility, but wondering if this creates problems because numerator and denominator often move together (eg spx down <=> vix up).
Jan
9
 comment What data transformations to use in regression of credit spreads on equity prices?
@Strange. You mean along the lines of Merton model? That's more for a static valuation (using levels of equity, equity vol, face value of debt), but i'm looking at time series of changes in variables. Apologies if i've misunderstood your comment.
Jan
9
 comment What data transformations to use in regression of credit spreads on equity prices?
I want to model the changes in credit spreads as a function of changes in equity prices and changes in swap yields, but it seems difficult to find a functional form that stabilizes the coefficients (in a rolling regression).
Jan
7
 comment How to see if a set of asset returns corresponds to a known correlation matrix?
Your answer would be greatly enhanced if you could include information about how you would formulate a confidence interval around your measure. Without this i can't see how it's useful. Thanks.
Jan
2
 comment How to see if a set of asset returns corresponds to a known correlation matrix?
This makes good sense thank you
Jan
2
 comment How to see if a set of asset returns corresponds to a known correlation matrix?
The given individual correlations could, for example, be calculated, from a longer history, from a specific historical period, or from implied volatilities (if available). How do you see this affecting the problem?
Dec
26
 comment How to interpret/use VaR and Standard Deviation?
Maybe not so peculiar if you consider the skew. If you take implied volatility of out of the money calls on your asset, and subtract the implied volatility on equivalent out of the money puts, and do for each asset, i would hazard a guess that the signs corresponds to the direction of the vol shifts you're seeing.