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Questions tagged [intuition]

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1
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0answers
109 views

Fixed Income Trading Intuition

Is there any literature discussing the economics of trading fixed income securities? I was asked in an interview the other day how I would trade/construct a bond portfolio if a) the fed raised rates ...
6
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2answers
206 views

What are some good books to read to get an intuitive understanding of relevant financial topics?

Studying to become a quant involves lots of maths and lots of theoretical models. Sometimes I feel like I have zero intuition regarding the things I am studying and how/when/why they may be applied in ...
4
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3answers
164 views

The possible preferences of investors for higher than first 2 moments of return distribution?

Can anyone explain in an intuitive manner a justification for possible preferences of investors for moments of return distribution beyond the first two moments (i.e. mean and variance). For example, ...
6
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2answers
432 views

Ito vs. Stratonovich: Why is it the exact midpoint that renders Ito-correction zero?

Perhaps I am approaching this from the wrong direction but I was just thinking about the relationship between Ito and Stratonovich integrals: It is a well known result that to convert one into the ...
6
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5answers
2k views

Intuition behind Fama-French factors

In the Fama-French 3-factor model the portfolio returns are explained by the market the SMB factor (Small [market capitalization] Minus Big) and the HML factor (High [book-to-market ratio] Minus Low)...
26
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4answers
5k views

Strictly local martingales: what is the intuition behind them?

A process $X_t$ is a local martingale if for each increasing sequence of stopping times $\{\tau_k,k=1,2,...\}$ the stopped process is a martingale. All true martingales are local martingales, but the ...
3
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1answer
169 views

What's the underlying idea of definition of constrained market in Skiadas' Asset Pricing Theory?

I'm self-studying Skiadas' Asset Pricing Theory, and find the definition of constrained market on page 21 confusing(you can find it here in the sample chapter). Definition 1.26. A constrained market ...
12
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1answer
3k views

Easiest and most accessible derivation of Black-Scholes formula

I am preparing a QuantFinance lecture and I am looking for the easiest and most accessible derivation of the Black-Scholes formula (NB: the actual formula, not the differential equation). My favorite ...
28
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6answers
15k views

What is the intuition behind cointegration?

What is the intuition behind cointegration? What does the Dickey-Fuller test do to test for it? Ideally, a non-technical explanation would be appreciated. Say you need to explain it to an investor ...