Questions tagged [modeling]
The modeling tag has no usage guidance.
194
questions
0
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35 views
Which exact interest rate should I use for valuing equity index futures (ie. SPX, MXEA)?
I'm trying to build a model that values futures for equity indicies like SPX. For example, this product link here. I know that the model is simple (please correct me if I'm wrong):
$$
S_{T} =S_{0}e^{(...
4
votes
0answers
137 views
Other statistical financial modeling textbooks like Risk and asset allocation by Attilio Meucci
I recently read about the book (Risk and asset allocation) written by Attilio Meucci and I found those statistical modeling and inference methods quite robust in my point of view, although there are ...
-2
votes
1answer
60 views
Should stock return series be modeled with a parametric distribution, or an autoregressive function? [closed]
If I have prior knowledg that a stock return series follows a parametric distribution, such as a Student t-distribution with 4 degrees of freedom, without actively looking for prior knowledge of ...
0
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0answers
29 views
Creating a single data set using daily trades
I try to model the price change of a stock using the daily trades. I have 3-months of daily trades data of an exchange. I want to create a single data set using this data by combining each days' data. ...
3
votes
1answer
180 views
Mean Reverting Heston Model?
Is there a name for a variation on the Heston Stochastic Process Model where not only the underlying volatility but the asset price itself is mean-reverting? I'm looking to model long term equity ...
0
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0answers
19 views
What are different types of response variable we can consider while developing quant model
I was trying to understand the response variables used in the quantitative trading/investing model development. This question may not look good but I searched on google and could not find results. ...
5
votes
1answer
200 views
Why do we not use copula for forward starting options?
Why do we use copulas for spread options but do not use them to correlate random variables across time, such as in the forward starting option?
0
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0answers
36 views
Quantifying Mortgage Refinance Incentive: Why define the Refi Incentive as the log of Mortgage Rate/Market Rate
I'm reading this research article, where they are using survival analysis to study mortgage prepayments. In this article they define the mortgage holder's incentive to refinance as: $Refi = log(Mr_t$ $...
1
vote
1answer
100 views
PnL due to model recalibration and its relationship with hedging error
Consider the case where at t=0, I calibrate my model to the market, but at t=1 my model is no longer able to recover the price in the market, so it needs recalibration. Say I have delta hedged my ...
0
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1answer
35 views
In your experience, when trying to predict something that occurs, do you model with a fixed time period?
Let's say you are building a simple model (like the classroom examples) of trying to predict, given past information, if the stock goes up or down in the future. One could, like in classroom examples, ...
2
votes
1answer
125 views
Do different prices under different models admit arbitrage?
There are many models for interest rate. If two people use two different models to price the same interest rate derivative, and come to two different prices, doesn't that admit an arbitrage? How ...
0
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0answers
60 views
Adapting a DCF valuation model for individual investors investing in a residential real estate asset and studying its implications
I am trying to better understand discounted cash flow (DCF) valuations to compute the net present value (NPV) of the collection of cash flows arising from the process of buying, holding, and selling a ...
0
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0answers
20 views
Grade system for backtesting key figures
I want to backtest my trading algorithm. The algorithm trades on a low timeframe with 400 “unique” trades. With unique I mean that it can place 1 or more of those 400 trades given different market ...
3
votes
0answers
112 views
How are Autocallables modelled?
What models are used to price autocallables ? Should we talk about Heston/SABR models which talking about this topic ? Any reference link is welcome.
1
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0answers
81 views
Is there a good book/blog on applying statistical methods in finance? [closed]
I am learning a lot of tools in statistics, but I am having a hard time figuring out where I could apply these methods in finance, especially in relation to investment and trading.
Is there a good ...
1
vote
0answers
53 views
Searching for two papers of H.Leland with regards to capital structure
I am searching for two papers of H. Leland which I assume previously were online, as many published papers have cited them.
The first work (Lecture notes) extends the Leland(1994a) model by ...
2
votes
1answer
64 views
Calibrate a model parameter with an error function
Suppose I want to find the implied volatility using an option model from market prices. Surely I can find the implied volatility for each strike price ($k$ different strike prices) for a given ...
2
votes
2answers
256 views
Pros and cons of mean equation equal to zero in a GARCH model
I fitted a standard GARCH model. The mean equation has no AR or MA terms. All the coefficients in the variance equation are significant at 5%. However the mean equation has a constant term equal to ...
2
votes
0answers
56 views
tick/book data vs bar data, worth the infrastructure investment?
For reference, I am talking on behalf of a small group of math/stats graduate students as well as software engineers (we are 6 total), we know each other for years and decided to make a small (private)...
2
votes
0answers
70 views
modelling known regime shifts
I wish to model a price time series with a known regime shift: electricity price before during and after the introduction of a carbon price. The time series looks like this:
you can see the jump in ...
1
vote
3answers
134 views
Insight on how factor models achieve dimensionality-reduction?
Going through the literature on factor models, I keep seeing the phrase "dimensionality reduction" and how factor models allow for the modelling of assets in high-dimensional cases, and I would ...
1
vote
0answers
76 views
Framework for analyzing transaction history
After many years of being discretionary trader I'm finally moving to systematized trading.
I have all the transaction history from my broker I want to be the basis of my models.
Is there a framework ...
1
vote
0answers
53 views
Measuring corporate size relative to world GDP
I'm working o a model where corporate revenue / world GDP is a dependent variable of some stuff (based on the model proposed in this paper: http://www.scielo.br/scielo.php?pid=S1807-76922009000200002&...
1
vote
1answer
185 views
Why do Factor Models set up their factors differently from regression?
While this may be awkwardly-titled, I hope that my question becomes clearer upon reading.
So this is what I gather about Factor Models: they are statistical models set up to explain the returns, ${...
0
votes
1answer
239 views
Exponential Smoothing - Alpha greater than 1
Simple stats question.
I'm having trouble finding anything in the literature as to why the smoothing coefficient can never be greater than 1. This question was started by me doing time series ARIMA ...
1
vote
1answer
65 views
CMS BondEdge “cash flow testing” (forecasts) and market values
CMS BondEdge is able to produce a stream of cash flows for a portfolio of bonds, by cusip, over a variety of interest rate scenarios. In the "cash flow testing" exercise at insurance companies, these ...
1
vote
0answers
64 views
Local volatility model equivalent reformulation
Do we have a equivalent formulation of the local volatility model, where the SDE of the model would be on the volatility and S would be a functional of the the volatility and time?
Thanks.
1
vote
1answer
179 views
Bitcoin dynamics - C++ Simulation
I would like perform a simulation of Bitcoin future prices given a sample of the 4 past years (2014-2018). My problem is that I do not know what model to use! For common stocks I used the geometric ...
1
vote
1answer
159 views
Mathematical models for personal finance decisions
I'm doing some bibliographic research on mathematical models for personal finance decisions. I should like to ask whether you know any of them, because the research that I did on Google Scholar haven'...
1
vote
1answer
105 views
Backtesting model results, but backtesting output sampled at different frequency than model output
So, I'm trying to backtest a model that computes P&L. This model pulls sensitivities on a weekly basis and applies market shocks to these sensitivities to project quarterly P&L. I want to ...
2
votes
3answers
260 views
Adjustments for Multicollinearity in Returns-Based Style Analysis
I am currently researching how to estimate a portfolio's effective mix (essentially figuring which weights to hold in broad indices that would have produced most similar return patterns). Sharpe's ...
1
vote
0answers
66 views
Preferred Stock pricing model
I am trying to build a model to price a preferred stock. I want to model the dividends as random payments. I can't find any papers online on the subject. Does anyone have a reference for me?
5
votes
1answer
674 views
why calibrate volatility and fix the mean reversion
I have had a few experiences or chats with teammates about the Hull-White model.
The famous model has 2 parameters :
The volatility
The mean reversion
Very often I hear that the mean reversion has ...
2
votes
2answers
126 views
Failing Jarque-Bera test but residuals looks normal on q-q plot and histogram
If I'm failing the Jarque-Bera test but the residuals still appear to be normally on a qq plot and histogram, is it acceptable to say that my residuals are approximately normally distributed? Asked ...
0
votes
4answers
111 views
How to test the linearity assumption of a model?
Let's say I want to have a model that projects income over a stressed period. I have a marked-to-market component that shows the P&L of trading book positions during this stressed period. Along ...
2
votes
1answer
1k views
Is this the correct way to forecast stock price volatility using GARCH
I am attempting to make a forecast of a stock's volatility some time into the future (say 90 days). It seems that GARCH is a traditionally used model for this.
I have implemented this below using ...
-1
votes
1answer
54 views
Smoothing of Implied Volatilty
I'm using ATM 30D implied volatility in a model I'm building, but need to smooth out the data. Is the best way just to use exponential smoothing or are there any better alternatives?
1
vote
1answer
233 views
How to understand the role of stochastic differential equations models in finance, in particular in managing portfolios?
I just begin to read Stochastic Volatility Modeling by Lorenzo Bergomi. I t is very inspiring to me, but there are some statements which confuse me and I would like to ask for help here.
In the ...
1
vote
1answer
168 views
MPT Efficient portfolio /Asset allocation
When finding the optimal allocation using markovitz, the model will return '0' weights for assets that are "inefficient". What is the standard way for dealing with these weights if all assets have to ...
0
votes
2answers
162 views
Procedures to follow when VaR model fails backtest
I was wondering what the correct procedure is to follow when a VaR model fails a backtest (either conditional coverage and/or independence tests)?
Assuming I am restricted to using a historical VaR ...
3
votes
1answer
704 views
Monte Carlo model with multiple assets step by step
Here are the following steps to calculate Monte Carlo VaR. I am learning how to proceed with each steps and I would need somebody who can explain. Do I have to create only 1 vector in step 4 (even if ...
1
vote
2answers
138 views
Distribution of data for GBM
I am running some Monte Carlo simulations with GBM on time series of commodity prices. First of all, the price data is annual between 1900-1950. I would firstly like to know if it is bad practice to ...
2
votes
1answer
159 views
Why Arent There Long Rate Models?
You have short rate models, https://en.wikipedia.org/wiki/Short-rate_model, but there doesnt seem to be any long rate models.
I find this weird as in options modelling you model the whole smile, not ...
-1
votes
1answer
40 views
How to interpret the accuracy result of the forecaste?
I'm trying to forecast the vacancy rate of multifamily rental property. I have the data from 1992 until today. I'm trying to fit a model with the serie without the last 2 observations.
I only need ...
12
votes
1answer
1k views
Market Making Strategies Found by Hamilton-Jacobi-Bellman Equation
Im working my way through the book "Algorithmic and High-Frequency Trading" (AHFT) by Cartea, Jaimungal and Penalva and i'm curious to see how the market making model with an exponential utility ...
1
vote
2answers
58 views
Modeling exercise notice time using lattices?
I am interested in modeling callable (say European) bonds which have a time gap between when the future call exercise is decided and when the call actually occurs (payoff) - say 7 business days. I am ...
5
votes
1answer
228 views
how are financial data with sparse and asynchronous features imputed in predictive modeling?
I watched a presentation from a large quantitative finance firm that spends a lot of effort around predictive modeling. One of the points the presenter emphasized was that they deal with a lot of ...
-5
votes
1answer
56 views
Which expression of $S_t$ to use under the Black-Scholes model?
I am currently looking at example exam questions relating to the evolution of a stock price under the Black-Scholes model. However, I am confused by seemingly inconsistent expressions used for the ...
1
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0answers
77 views
“Correct” way to average OAS of multiple securities?
Suppose one wants to compute an OAS on a portfolio of securities, but one can only compute the OAS of the individual securities. Is there a "best" way (under some metric) for one to go about doing ...
1
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0answers
180 views
Vega with SVI Gatheral bumps
How would one go about computing a vega profile of an exotic derivative where the volatility surface is modeled using Gatheral's SVI parameterization? In particular, I am thinking about bumping each ...
