Questions tagged [modeling]

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191 views

Fitting (marginal/multivariate) distributions to financial return data

I have calculated the simple arithmetic return on a number of different financial securities and am fitting both a Student-T and Generalised Pareto Distribution. My question is can I just use the ...
225 views

How to model the effect of earnings surprises on long-term returns?

I'm looking into modeling the relationship between EPS announcement surprises with long-term returns (1 quarter to 3 years with intervals). I've based my current methodology off papers looking at the ...
30 views

Methods of predicting liquidity consumption

Let's consider limit order book for a certain stock. By liquidity consumers i mean traders that buy/sell shares using market orders. What are the known methods/models for predicting total amount of ...
22 views

Replication of results shown in 'Empirical Asset Pricing: The Cross Section of Returns' by Bali, Engle, and Murray

I'm currently trying to reproduce some results shown in the book 'Empirical Asset Pricing: The Cross Section of Returns' by Bali, Engle, and Murray. More precisely, I try to compute Table 7.3 and 9.1. ...
30 views

How to estimate lambda from NAGARCH submodel in R

I am trying to estimate the model="fGARCH", submodel="NAGARCH" from the rugarch package in R. However, when I am estimating the parameters, only omega, alpha, beta and gamma are ...
53 views

Do we model stock prices using non-Markovian processes in continuous setting?

In a continuous setting, is it common to model stock prices using non-Markovian processes ? If so, do you have some examples of models ? Or is Markovianity something "embedded" in the ...
44 views

How do I deal with nonexistant data in a time series with an irregular frequency?

I am trying to do some time series analysis on the margin resulting from three specific commodity futures contracts and ultimately forecast the margin. The margin is calculated as M = F1 + F2 - F3. I ...
47 views

Kalman Filtering theory and application in Finance models under asymmetric or incomplete information

Why do we need Kalman Filtering theory in dynamic models in finance when we consider an environment of asymmetric or incomplete information? I understand that this has to do with the update of the ...
89 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 ...
62 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 ...
86 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 ...
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&...
71 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.
66 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 ...
84 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 ...
65 views

Binary or Multiclass Classification?

So I've been using ensemble methods to model stock price movement, using intraday per-minute data in the OHLCV format, with the prediction being a 1 if the future close goes up, and 0 if it goes down. ...
819 views

Matlab implementation for modelling stock price process

I am trying to model the stock's price process. Let's assume volatility and risk-free rate is given. I've come up with the code below to try and model the price process with the geometrical Brownian ...
50 views

How to reduce data dependence for empirically assessing option pricing model performance?

I am preparing a paper about mitigating assessment failures for option pricing models. For the sake of simpliciy, suppose we are talkin about European options. In basic terms, what I would like to say ...
508 views

Obtaining the drift of a Wiener process formed from a random walk

I'm trying to understand how the equation for Geometric Brownian Motion is formed from a random walk. I'm following the book 'Statistics of Financial Markets' but I'm struggling to follow how the ...
73 views

Is there anyone tried to use simultaneous stochastic differential equations?

I am looking for some examples or attempts of using simultaneous stochastic differential equations for financial analysis but there has been none so far. Is it just so nasty to apply such thing in ...
86 views

Out of Sample Results Decay Rapidly With Prediction Window or Embargo

So I am beginning to dabble my toe into quantitative finance and am trying to validate some model results and am having difficulty thinking about what they tell me. Here's my situation: I'm trying to ...
70 views

What are the most common methods to model fat tails in the changes of asset prices?

I was wondering what the most common, or most popular, ways - in both academia, and industry - there were to model the fat tails of volatility in asset prices changes. I am presuming a basic Brownian ...
76 views

Generalized Linear Mixed Model (GLMM) for the probability of default of corporates

I work in the financial industry and we want to implement an internal rating model for our clients (think corporates large or mid , banks etc. some listed on an exchange some others not). We want to ...
201 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 ...
184 views

What relevance might the Modigliani-Miller theorem have for weight of evidence?

Suppose in computing weight of evidence based on financial ratios of some bank, one finds that their debt ratio and equity ratio have largely (you pick how large I guess) differing weights of evidence....
125 views

Is "interest" positive or negative in the "free cash flow to firm" model?

FCFF = net income + non-cash charges + interest x (1 - tax rate) - long-term investments - investments in working capital My intuition is: if the company is receiving interests payments, then the ...
567 views