Questions tagged [models]
The models tag has no usage guidance.
1
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1answer
74 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?
0
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0answers
75 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
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0answers
29 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
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1answer
52 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
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1answer
54 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
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1answer
70 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 ...
0
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0answers
24 views
CIR IR model - Building in a “dynamic mean rate level”
I am currently running a Cox Ingersoll Ross model to predict LIBOR from today.
I have used data from 1978 to calibrate the model. (This is a separate question, as I know there will be a vast variaton ...
0
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0answers
117 views
What can cause autocorrelation in higher lag orders of returns?
I am fitting an AR(p) model to the daily time series of S&P500 returns. I have examined AIC/BIC up to 5 lags and both show that model with 2 lags is optimal. However, when I examine the residuals ...
0
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0answers
189 views
ISDA CDS Model Functions
I'm using the ISDA CDS Model downloaded from http://www.cdsmodel.com/cdsmodel/.
I've taken the Excel Add-In.
I see we have the following functions. However there does not seem to be examples or ...
1
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3answers
124 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
246 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
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0answers
61 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
660 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
146 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
65 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
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1answer
253 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 ...
5
votes
2answers
584 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 ...
4
votes
1answer
267 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 ...
4
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0answers
91 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
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0answers
84 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
137 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 ...
0
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0answers
54 views
Event studies, methods and models in Germany
What is the best event study, method and model to study stock returns in Germany?
Should I use long or short term study? CARS vs BHAR? etc
1
vote
1answer
81 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
174 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
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0answers
34 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
326 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
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0answers
255 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
87 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 ...
3
votes
1answer
169 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 ...
2
votes
1answer
106 views
Help understanding factor modeling, solving for residuals
I am trying to understand and implement a factor model, and I think I might be having some issues. I am trying to solve for the residuals in the equation:
$$
R_{i} = \sum_{A=1}^{K}\beta_{iA} f_{A} + ...
31
votes
5answers
4k views
Why aren't econometric models used more in Quant Finance?
There is a big body of literature on econometric models like ARIMA, ARIMAX or VAR. Yet to the best of my knowledge practically nobody is making use of that in Quantitative Finance. Yes, there is a ...
2
votes
1answer
175 views
Loss given default for Agency MBS
The question is regarding the LGD of Agency MBS. Although Agencies never defaulted, the Basel framework requires to calculate the Agency MBS LGD for capital requirement. The closest benchmark I can ...
1
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0answers
132 views
How to perofrm a simple GARCH simulation example?
How is it possible to simulate one million of tick data for, say EUR-USD price, using a GARCH model?
For example, how do I simulate $X_i$ for $i = 1 \dots 1000000$, with
$\text{mean}(X)=X_0 \...
5
votes
2answers
280 views
How to derive this approximation of the risk-neutral expectation of the variance?
On the paper Bollerslev, Tauchen and Zhou (2009 RFS) the authors say about equation (15):
The corresponding model implied risk-neutral conditional expectation
$$E^Q_t(\sigma^2_{r,t+1})=E_t(\sigma^...
0
votes
1answer
87 views
Motivation: Stochastic Interest rate model
what is a reason that someone might be interested in a stochastic-interest model such as the Chen model?
Also can you provide me with a link to an easy to read motivational paper/part of a paper on ...
0
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1answer
92 views
Why is the forward rate used for the underlying in Black's model?
Why is the forward rate suitable for being used as the underlying in Black's model?
Thanks
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3answers
788 views
Validating a Credit Scoring Model without Data
Fellow Quants,
Suppose you have a credit scoring model that is developed without the aid of statistics, because (unfortunately) there is no historical default/loss data in your portfolio. The ...
-1
votes
1answer
133 views
Where can I find data source for structural models?
I am starting a project to implement the Black-Merton-Scholes model from this book in R.
However, I am looking for, ideally free, data sources. Still I have access to a Bloomberg terminal.
Can you ...
8
votes
2answers
1k views
KMV-Merton Probabilties of Default vs Moody's EDF
Moody's used to publish probability of default estimates from their Moody's EDF model, but they have temporarily discontinued it. I understand that the Moody's EDF model is closely based on the Merton ...
2
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0answers
37 views
Specifying integration level of time series [closed]
Following model was estimated on 200 observations. How to specify the level of integration of $X_t?$ In brackets there are standard errors and p-value of Breusch-Godfrey test is also shown.
$X_t=0,02+...
4
votes
2answers
662 views
Ideas about Stochastic volatility models
I am currently working on comparing different models for modelling the volatility and then pricing vanilla options (I use option prices on real stocks in order to calibrate my models and then I ...
1
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0answers
516 views
PDE vs TREE vs MC vs Analytical
One what basis the pricing model can be differentiated for particular trade pricing. For exapmle why PDE or Binomial tree or MC or Analytical method will be consider for pricing any trade.
Question ...
3
votes
3answers
154 views
Parameters variation in fundraising financial model
I have created quite a large financial model in Excel with lots of input parameters which (after all calculations) have an influence on the output business indicators.
Among the input parameters are
...
1
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1answer
23 views
Measure difference between estimations and historic returns
For every day in a year, I have the return on an asset and the CAPM estimation for the return.
I want to measure the average difference between the set of returns and set of estimations.
So far, I ...
1
vote
1answer
65 views
Is it possible that some types of financial systems can resonate?
Financial systems can certainly be modeled using the same tools physicists use to model dynamic physical systems. The validity of such is evidenced by models such as that developed by Black and ...
8
votes
1answer
319 views
What are the empirical limitations to testing market efficiency?
I have encountered a rather elegant argument about the limitations of empirically testing for market efficiency, involving the central point that we do not know whether a result is due to the "true ...
4
votes
1answer
851 views
ARIMA model, cannot get rid of low order ACF spike
I've gone through all the steps to fit a good ARIMA model - I plotted the data, I looked at the ADF tests, I looked at the ACF plot with no AR and MA terms just a constants. I came up with an ARMA(0,1,...
5
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0answers
95 views
Estimating Number of “Day Trades” from Total Volume of Commodity Futures Contract
Looking at futures data I am trying to calculate/estimate the number of "day trades", i.e. positions that were initiated and closed during the same day, as distinct from those positions that were ...
2
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1answer
237 views
Negative Eonia rates
I'm curious how the current negative Eonia (Euro OverNight Index Average) rates would impact derivatives pricing. Does it mean that if I post cash collateral to you, I also need to pay you interest?
...
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0answers
622 views
Autoregressive distributed lag models ADL(p,q) howto in preferably matlab (stata/R/python/C# etc)
Could anyone provide me the details of how to determine the lag order of the distributed lags for an ADL(p,q) model in Matlab or another statistical package (and very much preferably in combination ...
