# Questions tagged [modelling]

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### Predicting Stock Returns vs Stock Price and then computing returns

I am working on building a model to predict the beta-adjusted returns of a stock using a set of features. At the moment, when I try to predict the stock price directly, instead of the returns, the ...
1answer
73 views

### What is the state of the art govie bond term structure recently

Specifically, the US govt bond market is segmented and the shape is difficult to model in a structural model, because recently there is a maturity gap from 12 to 20 year, and the front and back ends ...
1answer
34 views

### GARCH(1,1) forecast plot in R with training data

I've fit a GARCH(1,1) model in R and would like to create a plot similar to the one in this question: Is this the correct way to forecast stock price volatility using GARCH Could someone direct me to ...
1answer
31 views

### Calibrating g2++ in negative interest rate environment

I am working on a g2++ model in a dualcurve setup for both Euribor and EONIA. I have the model built, but have some issues in calibrating it - I get a perfect fit with a Nelder-Mead algorithm, but it ...
1answer
167 views

### Risk neutral modelling of a stock

Suppose a stock $S$ follows $$dS(t) = \alpha(t)S(t)dt + \sigma(t)S(t)dW(t),$$ where $W(t)$ is a Brownian motion under $P$. Also suppose there is a short rate process $r(t)$. My question would be is ...
1answer
93 views

### Which methods are there to determine the price of futures contracts?

Which method apart from the cost of carry model exists, and which works best in real life? How does the market expectations impact on the futures price?
1answer
127 views

### Modeling independent variables that have an asymmetric impact on the dependent variable

I'm trying to regress a dependent variable on an independent variable that has an asymmetric impact. E.g., the dependent variable is much more responsive to an increase in the independent variable ...
1answer
66 views

### Forecasting default rates using a macroeconomic model

I am trying to forecast corporate default rates using macroeconomic data. I have a few explanatory variables (all the variables are explained in figure 2), which range from 2000 to 2017. On this ...
1answer
46 views

### goodness of fit metric

I am trying to approximate the returns of asset A by means of a linear combination of other assets A'=aB0+bB1+c*B2.... I have this quite figured out but I'm not sure what a good metric for goodness ...
1answer
159 views

### Are processes with independent increments (which are not Lévy) used in finance?

From Jacod and Shiryaev's Limit Theorems for Stochastic Processes, we get the following definitions. Definitions: A process with independent increments (abbreviated PII) $X = (X_t)_{t \geq 0}$ on a ...
1answer
558 views

### Margin modelling to backtest futures investment strategy

Let say that I have access to continuous daily time series for 20+ years of data for E-mini S&P 500 Index Futures. I have a long/short strategy to backtest that places orders either on open or ...
1answer
39 views

### Passage from dates ranges to real numbers in modelling : which market practice?

Let's say I model a 6M forward Libor rate as a process $(L^1_t)_t$ that's a diffusion, with in view a Monte-Carlo (MC) pricing of some product. At some point I will have real life dates $T_i$'s that I ...
5answers
11k views

### What is a regime switch?

I've come across the term regime switch in volatilities when reading about the modelling of interest rates but could not find a definition for a regime switch and what a regime is. Can somebody give ...
1answer
541 views

### LIBOR 3M and 1M from Vasicek model

I would like to discuss my approach toward modelling of interest rates with respect to its downsides and advantages. My problem is to forecast daily LIBOR 3M and LIBOR 1M over a particular time ...
2answers
233 views

### Extensions of CIR

I could need some advice on extensions of the CIR model. The standard CIR reads $dr(t)=\kappa(\theta-r(t))dt + \sigma \sqrt{r(t)} dW(t)$. A possible extension, if we would like the short-rate to ...
3answers
782 views

### CIR model and calibration

I am new to quantitative finance. We know that in the CIR model the short rate can't go negative. My question then concerns calibration of CIR to a ZCB yield curve. Is it (and why?) possible to ...
0answers
1k views

### How to backtest Value at Risk Models using Conditional and Unconditional tests?

I am trying to carry out backtesting on a number of Value at Risk figures i obtained using var/covar, historical, and monte carlo simulation. The two methods im using are the Kupiec test (...
1answer
165 views

### Local volatility parametrization using the spot

Is it possible to estimate the local volatility using the spot price S at time t instead of the strike price K and the expiry date T ? Any help would be appreciated.
3answers
5k views

### Option Pricing Model Calibration In Practice

I'm curious how an option pricing model like the Heston model is calibrated in practice. Here's how I imagine it happens: Let's say I have access to the most recent option prices on a given stock ...
3answers
619 views

### Why do people always seek finite-variance models for option pricing

For the purpose of getting fatter tails than the Guassian, I have seen people for example use $\alpha$-stable processes to model the stock. But in that case they end up using 'tempered' versions of ...
1answer
96 views

### EGARCH formulation

I am a bit confused about the formulation of the EGARCH(1,1) model. First, we have the error term: $\epsilon_t=\sigma_t*\zeta_t$, where $\zeta_t$ is white noise. Now the EGARCH(1,1) should be:  log(...
0answers
689 views

### GARCH modelling and forecasting

I have a few questions regarding GARCH modelling and forecasting and it would be great if someone could help me. I am modelling the log return of oil spot prices using various GARCH models: GARCH, ...
2answers
2k views

### Is it too important that my residuals be normal? I am Using an ARMA/GARCH model

I am trying to fit an ARMA/GARCH model to a time series. I found that the best candidate is an ARMA(1,0) + GARCH(1,1) with gaussian white noise It has coefficients with p-values near cero and the ...
2answers
9k views

### Null and Alternative hypothesis for multiple linear regression

I have 1 dependent variable and 3 independent variables. I run multiple regression, and find that the p value for one of the independent variables is higher than 0.05 (95% is my confidence level). I ...
0answers
4k views

### Models for simulating FX movements

My goal is to develop a model to simulate long term FX movements. (I am not sure if long term makes any difference, but if it does I am more interested in long term fx movements) These Monte Carlo ...
3answers
1k views

### The Basis of Using Technical Indicators as Inputs

In the process of my research I very often come across academic papers regarding modelling and trading strategies that in one way or another incorporate some technical indicators. For example in some ...
8answers
7k views

### Sources of Machine Readable News

I'm starting on a project that involves correlating and forecasting Forex time series to news releases. I'm aware of sources such as Thomson Reuter's machine readable news and Dow Jone's Newswire ...