Questions tagged [models]
The models tag has no usage guidance.
117
questions
0
votes
2answers
68 views
How and why is there a restriction on short sales?
I'm taking a course on the fundamentals of financial mathematics. This is my first quantitative finance course, so I'm still getting acquainted with a lot of the ideas.
We covered the notion of a ...
1
vote
2answers
105 views
Are densities used in finance square integrable?
Let $f$ be the density of the stock asset under some model (Heston, SABR, Black Scholes, Variance-Gamma, etc).
Is $f$ square-integrable in these models?
1
vote
1answer
51 views
Vasicek Model Parameters Estimation
I'm currently trying to estimate the market price of risk (lambda) in the Vasicek Model, and am running into difficulties.
Using the Excel Solver tool and the Maximum Likelihood Estimation method ...
4
votes
0answers
180 views
Which finance models have enjoyed particular success in recent years?
I am looking for a list of recent developments of models in mathematical finance. By recent, I mean this last decade.
Which models have been developed and introduced during this period, being met ...
1
vote
1answer
87 views
Proper Data Partitioning For Building a Forecasting Model
Goal: A team and I are looking to build a model that performs a predictive action for the state of the market on day T + n, using the data at hand on day ...
1
vote
1answer
43 views
Understanding Walter's Dividend Policy Model
I'm trying to understand the justification for the mathematical formulation of the Walter model (1956), which provides an equation for the price of a stock based on present value of dividends and ...
1
vote
0answers
44 views
Calibrate an HJM model in a multicurve setup
I am a mathematician and I'm working on my thesis on Financial Mathematics.
I studied this model HJM in a multicurve setup:
$$
\begin{cases}
df(t,T)=a(t,T)dt+\sigma(t,T)dW_t & (\mbox{rik-free})\...
1
vote
0answers
70 views
Is there a good book/blog on applying statistical methods in finance? [closed]
I am learning a lot of tools in statistics, but I am having a hard time figuring out where I could apply these methods in finance, especially in relation to investment and trading.
Is there a good ...
4
votes
1answer
52 views
Negatively Correlated Assets with similar medium-term trends
Theoretically, one could have stock prices with returns $\rho_1(k)$ and $\rho_2(k)$ having mean values $\mu_1$ and $\mu_2$, but still be negatively correlated with
$$
\mathbb{E}[(\rho_1(k)-\mu_1)(\...
2
votes
0answers
62 views
What model do market makers in equity derivatives commonly use to price, hedge, and fit the IV surface?
What is the industry standard/common model used by market makers in equity derivatives to trade across the IV surface?
1
vote
0answers
29 views
Free DCF model database
Over the years, I have accumulated quite a few DCF models (some are my own and some are from others). I am wondering if there is any website where I can upload mine and download those of others so ...
0
votes
0answers
49 views
looking for a simple realistic parametric volatility model
Which parametric volatility is realistic to test quickly and qualitatively a model?
I do not wish to fit market quotes but would like to have a non-trivial volatility with skew or smile to do some MC ...
0
votes
0answers
53 views
8
votes
2answers
438 views
Interest Rate Models cheat sheet - Need for advice
I'm trying to get through the litterature of interest rate models for some time now. As I don't have any experience working with them, I started looking for some kind of a cheat sheet that would ...
3
votes
1answer
107 views
Problem at deriving Bachelier formula with interest rates
In the Bachelier model, I have difficulties with a certain step. I want to figure out the distribution of $S_T$, which is the price process in the Bachelier model.
So far I could state that ($\mathbb{...
1
vote
0answers
29 views
Has there been studies done on changes in model performance post-crisis?
My question is, has there been done any studies on whether the efficiency and accuracy of pricing and risk-management of derivatives using different models and algorithms has changed after the ...
0
votes
2answers
98 views
Is it possible to adapt Fama French Model with a 6 factor Model?
I am currently working on my thesis and I was wondering if it was possible to add a new factor to the five model one. This new factor would include the ESG's characteristic of the stock. I would like ...
1
vote
1answer
56 views
CRR model arbitrage free
I'm currently studying this proof
In this proof the author defines a probability measure
$$P^*[\{\omega\}]=(p^*)^{k(\omega)}(1-p^*)^{T-k(\omega)}$$
on
$$\Omega=\{\omega=(y_1,\ldots,y_T)|y_i=\pm1\}$$...
1
vote
1answer
200 views
rationale for maturity adjustment formula in basel IRB formula
For capital requirement, rwa is computed as a product of terms including a K (unexpected losses).
(As shown is the summary from wikipedia :
https://en.m.wikipedia.org/wiki/Advanced_IRB
)
K is ...
2
votes
1answer
107 views
What's the logic behind binomial model ups and downs?
I want to understand what is the underlying logic in the calculation of u and d in a binomial model.
$$
u = \exp\Bigl(\sigma \sqrt{\Delta t} \Bigr), \quad d = \exp\Bigl(-\sigma \sqrt{\Delta t} \Bigr)...
0
votes
1answer
46 views
Sum disappearing when we assume constant some elements to be constant over time [closed]
I have the dividend discount model, which is the following expression:
$$
P_{j,t} = \sum_{\tau=1}^{\infty}D_\tau(1+g)^\tau(1+r)^{-\tau}=\frac{D_{\tau+1}}{r-g}
$$
Where $D_t$, is the dividend at time ...
2
votes
0answers
110 views
Architecture of a global pricing library with immutable payoffs
By global pricing library I mean a library
handling equity, rate etc, hybrid products
having several models (BS, LV, SV, LSV)
having several numerical methods (analytic formula, MC, PDE FD/FE)
I ...
1
vote
1answer
325 views
What is market standard model in equity, FX and interest rates exotics?
Is there any industry consensus about the model to use for pricing exotics in equity, FX and interest rates?
I assume that for vanilla options they all use Black model, but how about exotics?
Also, ...
2
votes
1answer
130 views
Standard GARCH(1,1) model with external regressors
I have a queastion how does a standard GARCH(1,1) model with external regressors in mean and variance euqations look like ?
I know that standard GARCH(1,1) model without external regressors has the ...
1
vote
0answers
65 views
What kind of ARMA-GARCH model is that?
My question is what kind of ARMA-GARCH model is the following equation and how to specify it in rugarch R module:
$$r_{t+1}- r_t = \alpha_0 + \alpha_1r_t+\...
1
vote
1answer
162 views
Good references on Heston Model?
I am looking for good bibliographic references on Heston Model and Stochastic volatility models in general.
Does anyone know any good introductory/intermediate references on this topic?
1
vote
1answer
239 views
Natural Gas Modelling
In job adverts for natural gas/power trading it states knowledge of supply and demands models for these commodities. Does anyone know of any good papers or primers on S&D modelling?
1
vote
0answers
33 views
Determining the Relationship Between Monte Carlo Breaks and Model Volatility
I'm looking for a statistical test to understand the relationship (if any) between the model volatilities of a stochastic process, and the occurrence of 'break', defined as the instance when an ...
0
votes
1answer
117 views
Spreadlock derivatives
I would like to price a spreadlock forward swap and a spreadlock swaption but I don't find in the web any research article. Would you please provide me with some freely accessible papers on the web ? ...
0
votes
1answer
84 views
Single Model Accuracy Estimation
I'm working on a model to estimate CDS prices, and want to backtest it against a historical timeseries. What are some error/goodness of fit measures that I can use for this purpose outside of RMSE?
I'...
0
votes
1answer
96 views
different Z-spreads for a same company
A same company has two different bonds.
I expected the Z-spread to be close for both bonds (since my representation of the Z-spread is the spread due to credit-risk proper to the company).
Here is an ...
1
vote
3answers
143 views
Besides arbitrage opportunities, are there other properties that real world markets cannot have
The article "What is ... a Free Lunch?" nicely explains why market models with arbitrage opportunity are unlikely to describe financial markets of the real world.
Are there other properties of ...
3
votes
1answer
350 views
Scaling (Data prep) & Feature selection for the financial Data for LSTM Models
Overview
I'm training an index e.g. FTSE100, where I have 8 years of past data (daily). I also have a list of its constituents.
For each stock, I have the following features:
...
1
vote
0answers
219 views
Proof positiveness condition CIR dynamic
Ciao All.
I'm studying the CIR model and this question came out.
Usually the Ornstein-Uhnlenbeck dynamic is used to build the CIR model:
let
$$
dX_t = aX_t + \sigma dW_t
$$
where $a \in \mathbb{R}$ ...
5
votes
2answers
735 views
What is model-free finance?
I have run across the term "model-free finance" (e.g. there was a Thalesian talk in London recently), yet haven't found any real definition of it nor anything really substantial.
Could you point me ...
5
votes
1answer
156 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 ...
1
vote
1answer
78 views
Use of fBm when $H<1/2$
Let H be the Hurst parameter of the Fractional Brownian Motion. Are there any useful areas in mathematical finance where the fractional brownian motion with H<1/2 is used? From all the articles I ...
0
votes
1answer
351 views
Short-Interest Rates Models - Geometric Brownian Motion?
in a paper of Brennon&Schwartz (1977), they model embedded bond options by using an stochastic interest rate model which follows a geometric Brownian Motion.
Now they claim that this assumption ...
6
votes
2answers
791 views
What are the significant implications of the long-run average variance rate and why Engle won the Nobel Prize for ARCH model development?
In a ARCH(m) model we have
$$
\sigma_n^2=\sum_{i=1}^{m} \alpha_i u_{n-i}^2
$$
where $u_i$ is defined as the continuously compounded return during day $i$ (between the end of day $i-1$ and the end of ...
3
votes
1answer
300 views
Relation between price changes and trading volume (market impact)
It is quite a well-know phenomenon that trading volume has an impact on a stock price: the more you buy the higher is a price because of demand increment. I'm wondering about models that can describe ...
3
votes
0answers
99 views
VAR models when examining relationships between financial markets
When researchers examine lead-lag relationships between credit default swaps and (as an example) stock markets, many use Vector Autoregressive Models (VAR). They want to find out what market "is ...
3
votes
0answers
92 views
Electricity Prices: Change of measure in practice
I'm working on a model of electricity prices. I have empirical data $X(t)$ and managed to find a reasonable fit given by a Levy process $\hat{X}(t)$. I understand in theory what a risk-neutral ...
1
vote
1answer
181 views
Why change numeraire for the LIBOR Market Model
There are two form of LIBOR Market Model that has a drift introduced. I would like to know in plain english explanation why do practitioners use these changes of measure. Are there any significance to ...
1
vote
1answer
153 views
How to compute the Value-at-Risk of an equity portfolio hedged using futures contracts?
I would like to have your opinions about how to calculate the VaR of a hedged portfolio using futures contracts.
I have tried several "black box" softwares and none of them make too much sense. The ...
1
vote
1answer
325 views
Use of ACD to model transaction durations
I am using a simple ACD (autoregressive conditional duration) model with expoential or Burr distributed residuals and 1 lag, i.e. ACD(1,1).
I am modelling durations for transactions data on a 'medium'...
0
votes
0answers
47 views
What is the whole list of assumption that Ho Lee model was under?
What is the whole list of assumption that Ho Lee model was under?
Please briefly describe how was each assumption match the real world finance/economics applications so that it shows how the model ...
8
votes
2answers
417 views
Confusion with volatility smiles implied by different models
I am reading a book "The concepts and practice of mathematical finance" by Mark Joshi. In Chapter 18 he discusses the shapes and dynamics of smiles under different models. I do not understand what is ...
1
vote
0answers
297 views
Basel Basic CVA Approach Model Foundations
I am working on CVA (credit valuation adjustments). The Basel committee released consultative document reviewing the CVA Risk Framework 'Review of the Credit Valuation Adjustment Risk Framework (2015)'...
0
votes
2answers
111 views
Model which fully incorporate OHLC data (higl ald low also)
OHLC data are one of the most popular kind of data available.
Are there models which could incorporate all the information provided by OHLC - regular 1-minute frequency data for example ? Usually only ...
2
votes
1answer
213 views
Mix of Arithmetic and Geometric Brownian Motion
Talking with some traders the other day, I found out that they were using a pricing model based on a mix between a geometric brownian motion and an arithmetic brownian motion to price certain ...
