Questions tagged [models]
The models tag has no usage guidance.
151
questions
1
vote
1answer
134 views
Stochastic volatility Levy models
Hey I have some questions about stochastic volatility for Levy processes. If I understand correctly, if we change the time in Levy's process by CIR process, the newly received process is not Levy's ...
1
vote
1answer
75 views
modelling FX with crosses: USD conversion on entry and exit, or just exit?
I am backtesting a model that trades currency crosses (i.e. EurGbp) at a fixed $1 mln per trade and was curious if I need to a) account for my currency exposure to GBP on both ends of the trade or b) ...
1
vote
1answer
57 views
Loan level model to understand drivers of mortgage prepayments
I am following up from my question here. As described there, I'm trying to assess the drivers of CPRs for a type of MBS. However, I want to understand, how a loan-level model of such a relationship ...
1
vote
1answer
72 views
How to set up data for understanding drivers of prepayments
I would like to understand the drivers of prepayment of a certain sector of MBS. I have some explanatory variables that I think would explain the actual CPR's and want to model the prepayments through ...
0
votes
0answers
105 views
Is there a framework to study quantitative model robustness/uncertainty?
Can you point me to any resources about a possible framework to analyse and possibly quantify model uncertainty and -robustness associated with quantitative investment models?
As an example, there ...
3
votes
0answers
92 views
Linear programming optimization problems in finance
I'd like to know what are, if any, the applications of linear/non linear programming optimization techniques for financial markets.
I'm a business major, and I want to find an argument for my thesis ...
2
votes
0answers
90 views
Are Levy models useless after the financial crisis of 2008?
I calibrated (by minimizing RMSE) the Black Scholes, VG and CGMY models to data from 2005 (before the crisis) and to data from 2020. The results surprised me. I do not understand why for data from ...
1
vote
1answer
112 views
Interpretation of parameters in the CGMY model
I would like to understand role of parameters $C,G,M,Y$ in CGMY model, especially $G$ and $M$. The Lévy measure is $$\nu(x)=C\frac{e^{-Mx}}{x^{1+Y}}1_{x>0}+C\frac{e^{-G|x|}}{|x|^{1+Y}}1_{x<0} $$...
0
votes
0answers
108 views
Inter-temporal structural stability of stock markets
For my bachelor thesis I am trying to determine structural stability of some stock market in the following way:
Identify an ARMA model for the whole sample
Split the sample in two parts, and estimate ...
0
votes
0answers
99 views
Calibration and comparison of the Vasicek model and Ho-Lee model
I would like to calibrate the Hoo-Lee model and the Vasicek model to a historical interest rate series and compare the interest rate development of both models with the historical interest rate series....
4
votes
1answer
331 views
What does it mean that model can reflect the ”volatility smile”
I know that implied volatility is the value for which the Black Scholes model returns the correct option price. I also know that if we plot the volatility on the strike price chart, we will see "...
0
votes
2answers
67 views
I just got Matlab, what are some options that I should model in a jump diffusion
Don't worry I understand mathematics: ito's calc, martingales, etc. I am just curious what options I should test, and from what indices. Is there stuff I can test from the 2008 crash to measure their ...
2
votes
1answer
161 views
Is it always better to use the entire distribution of a financial returns series, not just $\mu$ and $\sigma$?
In finance models that use historical returns for inputs, including option pricing models, forecasting and portfolio optimization, only the statistical moments of the returns distribution, $\mu$ and $\...
2
votes
0answers
126 views
Market Making Formulation
I'm developing a deep reinforcement learning based approach to market-making. In order to implement this, I need to define the appropriate actions and define environmental steps. While doing some ...
1
vote
0answers
31 views
What's the industry standard/typical way to model contango or futures spreads?
If you want to include futures spread either as a response or predictor, I would imagine you also need to include time to expiration somewhere in your model.
What is the industry standard way to ...
0
votes
0answers
55 views
Does anyone have codes that would solve the multi-period Kyle model?
Whenever I begin working on something new, I like to find existing examples of how things are done so that I can double check at least the basics before moving on to more complicated problems.
I am ...
1
vote
0answers
53 views
Why are cashflows “modelled backwards in time”?
A am currently reading a manual on how to use some actuarial modelling software to project the expected liability payments made under an annuity contract. In this guide, the following statement is ...
1
vote
1answer
82 views
Overview of frequentist, likelihood and Bayesian approaches to finance problems
In quantitative finance tasks (asset pricing, portfolio optimization, option pricing, volatility forecasting, etc), there are frequentist, likelihoodist and Bayesian approaches or interpretations to ...
1
vote
0answers
43 views
Modelling considerations for a jump model
The Problem:
Suppose I have a simple jump model for an asset price
$$ dS = S(t-)[\mu dt + YdN(t)] $$
where $N(t)$ is a Poisson process and $Y_i$ are the jump sizes (assume independece of $N(t)$ and ...
0
votes
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 ...
1
vote
0answers
61 views
Anyone got references where we can find examples of codes for agent-based simulations of financial markets?
I'm looking for references with codes for trying out simple agent-based simulations for modeling financial markets. I mostly worked with MATLAB and R, but I know a bit of python and I am learning C++ ...
0
votes
0answers
30 views
Looking for a math description of upside/downside implied vols - does Dupire help?
This is in continuation of this post which explained the meaning of the vols in the vol smile as follows:
Suppose you have a downsloping vol smile. Then, the fact that the vol is higher on the ...
2
votes
2answers
72 views
Closing prices are predicted very well but returns are predicted poorly
I'm learning some time series analysis and forecasting techniques, I've tried to predict stock prices for Netflix but I'm very confused.
At first I've tried Auto ARIMA which gave me a straight line, ...
0
votes
2answers
70 views
Is it possible to build a computer model to simulate a market to prove whether efficient theory is true or not?
I know this may sound stupid. But I had this idea and wanted to try it out for a college project.
Has this been done before?
If and what's wrong with this idea?
1
vote
2answers
421 views
Hedge backtesting: ex-ante Beta vs observed Beta (is this even possible?)
A global equity portfolio has for objective to outperform a benchmark (MSCI World). I hedge the sensitivity of the portfolio to MSCI World (the beta) so that only the alpha remains unhedged.
The ex-...
0
votes
0answers
17 views
I would like to fit a CARR model using the 'rugarch' package in R - what should I include in the specification?
I know I have to specify a GARCH model for the square root of range without a constant term in the mean equation - just unsure how to apply this in the rugarch function.
0
votes
0answers
48 views
Name for $\phi$, philosophical meaning
When I have a model like :
Volterra-Heston Model defined by:
\begin{align}
\label{eq:model1}
V_t
&= V_0 + \kappa \int_0^t K(t-s) ( \phi - V_s ) ds + \int_0^t K(t-s) \sigma \sqrt{V_s} dB_s \...
0
votes
0answers
30 views
swap discrete market model
Let be $M = (S_0,E,\Phi)$ a market where the risk-free rate is $r = 0$ and the Euribor $E$ evolves (annually) in discrete time following a three-period binomial model. Assume that $E_0 = 0.031$, the ...
0
votes
0answers
29 views
How to model the different returns of agents with different information information
For a seminar, I would like to graphically represent the returns made by agents of different information standpoints. In other words, say I have a market tuple $(\Omega, \mathbb{F}, P,S)$ where $S$ is ...
0
votes
0answers
59 views
How does modeling provide an edge to banks in the derivatives space?
I was thinking about the actual need for creating quantitative financial models, especially for derivative products. Consider simple calls and puts for different strikes and expiries on stocks and ...
4
votes
4answers
203 views
Does the non-causal nature of quant models limit their applicability?
I understand that to describe financial data, we build stochastic models and calibrate their parameters to past data. When coming up with new algorithms, we rely on rigorous backtesting to convince ...
3
votes
1answer
78 views
Are Lévy processes absolutely continuous?
If $X_t$ is a Lévy process, is it absolutely continuous? Meaning, does it have a density?
1
vote
1answer
47 views
Which models have non-smooth densities?
By smooth, I mean a density $f$ that lies in the space $C^\infty$, infinitely differentiable.
Are there, in the literature, some known models where the underlying density of the state process is non-...
1
vote
1answer
83 views
CEV Model Primer
Could someone please point out to a good primer on CEV model?
I am trying to get a basic grasp of the model: The dynamics, advantages & disadvantages, for which payoff it is usually used (Hybrid ...
0
votes
2answers
74 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
149 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
418 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
189 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
140 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
50 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
96 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:
$$
\begin{cases}
df(t,T)=a(t,T)dt+\sigma(t,T)dW_t & (\mbox{rik-free})\...
1
vote
0answers
82 views
Is there a good book/blog on applying statistical methods in finance? [closed]
I am learning a lot of tools in statistics, but I am having a hard time figuring out where I could apply these methods in finance, especially in relation to investment and trading.
Is there a good ...
4
votes
1answer
61 views
Negatively Correlated Assets with similar medium-term trends
Theoretically, one could have stock prices with returns $\rho_1(k)$ and $\rho_2(k)$ having mean values $\mu_1$ and $\mu_2$, but still be negatively correlated with
$$
\mathbb{E}[(\rho_1(k)-\mu_1)(\...
2
votes
0answers
73 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
34 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
54 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
66 views
8
votes
2answers
757 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
236 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
30 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 ...
