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Apr
14
comment Standard Formula for Solvency II
Have you googled "introduction to Solvency II" or similar terms? This should give you plenty of general information.
Mar
6
comment What does tradable asset mean?
Yes, my first thought was cash but I removed it. What is cash? If you think of physical notes made from paper then those would not fulfill the requirements of tradable assets. So a tradable asset should be electronic at least. And in comparison to S&P futures, where would the funds for a trade in those come from? But it is clear that bank deposits imply credit risk and this limits tradability. I am no expert on these more payment and settlement related questions and open to better suggestions. It might even make a good followup question.
Mar
3
comment What to use as portfolio diversification measure?
I agree with SRKX but would even go one step further. It does not make a lot of sense (at least to me) to discuss diversification unless you specify a risk measure. Then the perfectly diversified portfolio is one which minimises your particular risk measure.
Feb
7
comment Get distribution for aggregate loss using Monte Carlo
I am still not sure I understand because what you seem to want sounds somewhat unusual. Normally people fit frequency and severity and then simulate exactly to avoid doing a fit to the aggregate distribution. Why do you need a parametric representation of the aggregate losses, if you can simulate them?
Feb
6
comment Get distribution for aggregate loss using Monte Carlo
And by the way, given that losses from operational risk often are very heavy tailed, I would consider carefully whether a distribution for such losses should have finite variance
Feb
6
comment Get distribution for aggregate loss using Monte Carlo
Your question is not clear to me, what do you want to know: 1. Do you want to know how to do a Monte-Carlo simulation given a frequency and severity distribution? 2. Do you want to know how to calibrate a specific parametric distribution to your data at hand? Or do you want to know how to choose such a parametric distribution in the first place?
Jan
29
comment Which sports are generally the best for trading on betting exchanges for a profit?
Interesting read and good advice for beginners. Some of it should generalise to betting on other underlyings as well.
Jul
10
comment How to see the impact of one variable on a set of other variables?
Richard is right this sounds like a job for regression analysis. If you would like to bet money on the outcome be aware that you attempt a very difficult thing and there are many pitfalls. The main problem is the large number of potential factors and their complex and time dependent interaction. I guess you can start with any book covering regression and time series analysis. In addition there are a gazillion of academic and other papers. A quick search with the keywords "shocks" "equities" and "regression analysis" gave me about 6m hits
Jul
10
comment What are the implication of a negative risk-free rate on SML?
Second comment: Does CAPM still make any sense as a model if risk free rates are negative? One could hold cash in physical notes in a safe vault earning zero which means negative risk free rates create arbitrage opportunities. So the fact that negative risk free rates are possible at all can only be explained with features not contained in the CAPM model, such as the cost of safe bank vaults or the fact that there is no risk-free asset in the first place.
Jul
10
comment What are the implication of a negative risk-free rate on SML?
First Comment: Are negative rates really consistent with the assumptions underlying CAPM? For example why would anyone invest risk-free instead of consuming wealth immediately?
May
28
comment List of financial derivatives Ito's Lemma does not apply
Probilitator: Can you give a reference for the smoothness result for $g(t,x)$? I was just looking for something in that direction.
May
28
comment Is there any other way to measure option pricing model performance than proximity to market prices?
I would like to support Matt's comment by pointing out the "no-arbitrage" principle. Due to this principle an option price is closely connected with the underlying's price. Whenever no-arbitrage applies option prices are not an "estimate on the future of the underlying's market" at all. Furthermore "better model" needs to be decided in view of its application. If you want to trade and your model is "off the market" you are very likely in trouble since people might be able to make a riskless profit from you.
May
6
comment Empirical copula
No, the joint distribution is not defined (or only up to $Y\leq 2$) thus the copula is not defined. Of course you could extrapolate. But to do this you need additional assumptions, such as a parametric copula or joint distribution.
Mar
3
comment The concept of an incomplete market
@Probilitator: This is a link only reply, which are supposed to be provided in comments as per policy. I learned this the hard way :-) i.e. one of my answers got removed.
Mar
3
comment Algorithmical replication of a profit and loss function using different options
Hmm, why do you need puts? Let $S$ be the underlying and $K$ any strike level. Then the pay-out of the put is $max(K - S, 0)$ which is equal to $K - S + max(S - K, 0)$ which is a portfolio consisting of $K$ long cash, short the underlying (i.e. one call with strike zero), and long a call with strike $K$.
Feb
28
comment The concept of an incomplete market
A good reference is "Föllmer, H. and Schied, A. (2002). Stochastic Finance: An Introduction in Discrete Time, de Gruyter Series in Mathematics 27, Berlin". Whether it is "easily accessible" or not is of course a matter of subjective taste. It covers the first two bullet points comprehensively.
Feb
28
comment Algorithmical replication of a profit and loss function using different options
Actually this problem is not about options it is about approximation of a function (the pay out) by a set of basis functions (the calls.) It is (as you say) pure linear algebra. You even do not need Puts and Calls. If you permit long and short positions only Calls and Cash are sufficient. Solutions are unique if your replicating instruments are linear independent. In many cases the space of functions you would like to replicate will be of infinite dimension. But the case of piecewise linear functions with a finite number of breakpoints is entirely straightforward.
Jan
30
comment Consistency of economic scenarios in nested stochastics simulation
It does not address the question as there is no reference to nested stochastics. Actually I could not even find a clear distinction between real world and risk neutral dynamics. From a quick glance the author seems to suggest a discrete Markov chain approach for calibrating an economic scenario generator. This is a straightforward idea but in my opinion such an approach will work only if the state space has very low dimension (<5), since in higher dimensions this discretisation of the state space is no longer feasible.
Jan
27
comment Quasi Monte Carlo in Matlab
Could you explain a bit more what you are exactly trying to achieve? E.g. what do you mean by "convergence"? It is not clear to me what is supposed to converge to what. The second paragraph sounds like you were using the Quasi random numbers as "noise" which you add to something so that your regression methods have something to pick up. The convergence results you quote are related to the variance of the standard MC-Estimator which is something different from regression.
Jan
23
comment what is considered material information?
This question appears to be off-topic because it is a legal question not quantitative finance related