Questions tagged [models]
The models tag has no usage guidance.
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Is there a standard model for market impact?
Is there a standard model for market impact? I am interested in the case of high-volume equities sold in the US, during market hours, but would be interested in any pointers.
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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 ...
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Model Validation Criteria
Let's say I have a brand new fancy model on some asset class (calibration porcedure included over a set of vanilla options) in which I truly believe I made a step forward comparing to existing ...
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Paradoxes in quantitative finance
Everyone seems to agree that the option prices predicted by the Black-Merton-Scholes model are inconsistent with what is observed in reality. Still, many people rely on the model by using "the wrong ...
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How do we use option price models (like Black-Scholes Model) to make money in practice?
In quantitative finance, we know we have a lot of option price models such as geometric Brownian motion model (Black-Scholes models), stochastic volatility model (Heston), jump diffusion models and so ...
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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 ...
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Multi Fractals Models
From a quant point of view, how would you explain Multi Fractals Models in few words ? I have the level to take these courses, but won't be able to do it next year, so I want to know what I am missing....
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Typical coefficients uses in square-root model for market impact
The square-root model is widely used to model equity market impact. It assumes that volatility, traded volume, total volume, and a spread cost are the drivers of slippage.
Jim Gatheral has an ...
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Why isn't the Nelson-Siegel model arbitrage-free?
Assume $X_t$ is a multivariate Ornstein-Uhlenbeck process, i.e.
$$dX_t=\sigma dB_t-AX_tdt$$
and the spot interest rate evolves by the following equation:
$$r_t=a+b\cdot X_t.$$
After solving for $X_t$ ...
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Which interest rate model for which product
Given the multitude of existing interest rate models (ranging from simple to very complex) it would be interesting to know when the additional complexity actually makes sense.
The models I have in ...
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Implementing a Fast Fourier Transform for Option Pricing
So, I'm in need of some tips regarding a small project I'm doing. My goal is an implementation of a Fast Fourier Transform algorithm (FFT) which can be applied to the pricing of options.
First ...
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Risk Model Validation
I have such a general question regarding risk model validation. Which tools are most often used for validation and how does the process work? Could you recommend any books that focus on this topic?
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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 ...
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How are quants able to verify whether their calculated prices are any good
This question is related to the discussion on Model Validation Criteria
However it appeard to be very high level to me and I would like to go more into detail.
Not working at a pricing desk the ...
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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 ...
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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 ...
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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 ...
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Non-constant Volatility of the Volatility in Stochastic Volatility Models
In pricing financial derivatives, we often first assume that the volatility of the stock price is constant.
$$\mathrm{d}S(t) = \alpha S(t) \mathrm{d}t + \sigma S(t) \mathrm{d}W(t)\text{.}$$
The ...
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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 $\...
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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 ...
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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 ...
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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, ...
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