Questions tagged [models]

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6
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360 views

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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200 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 ...
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105 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 ...
4
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359 views

Discrete-time Jump-Diffusion Model

I am wondering if anybody could point me to any literature that talks about a discrete time version of the jump-diffusion model, I am aware that there is a paper by Amin (1993) that shows a discrete ...
3
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117 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 ...
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219 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 ...
3
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0answers
104 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
102 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 ...
3
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238 views

Markov switching model estimation

We are testing Markov switching models to forecast risk regimes, similar to the paper by Kritzman, Page and Turkington. We find that in some cases the Baum-Welch algorithm converges very slowly or not ...
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76 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?
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396 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 $a \in \mathbb{R}$ ...
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81 views

What is the main reasons to use Miltersen & Schartz (1998) model for commodity futures options

versus a standard Generalised Black and Scholes model (if there are any?) I have read the paper but I am not to sure about its practical implications as would people with more experience using this ...
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86 views

Calculating the error of a Trinomial Model

I've been trying to find a formula to obtain the maximum relative error a trinomial model with n timesteps will incur given all other inputs as compared to the standard BSM model. I'm concerned mostly ...
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46 views

Do we model stock prices using non-Markovian processes in continuous setting?

In a continuous setting, is it common to model stock prices using non-Markovian processes ? If so, do you have some examples of models ? Or is Markovianity something "embedded" in the ...
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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 ...
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56 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 ...
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47 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 ...
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66 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++ ...
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2answers
868 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-...
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1answer
188 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 ...
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0answers
134 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})\...
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42 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 ...
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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 ...
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0answers
73 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+\...
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0answers
35 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 ...
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0answers
344 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)'...
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216 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 \...
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0answers
871 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 ...
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0answers
662 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 ...
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0answers
88 views

Incorporating a stochastic correlation structure into a multi-factor model

I am considering extending a multi-factor fixed income stochastic model (e.g. LIBOR-Market) to use stochastic correlation matrices instead of determinstic ones. For pricing instruments with short ...
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0answers
349 views

Market Standard Pricing Models for Fixed Income Securities (Vanilla)

To clarify my heading, I have been searching for a material that consolidates all standard Fixed Income Security Pricing. E.g. ...
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0answers
34 views

Algortihm for distributing volume for 1min candle

Context: I have historical 1min prices for stocks, including premarket. However, when importing real-time data, the standard practice in the financial data industry is to give only OHLC (open, high, ...
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0answers
11 views

Calculate core deposit bucket percentages

I need to forecast core deposits in a commercial bank. One technique that I saw consists in dividing the amounts in buckets and applying a percentage to each bucket to obtain the core deposit. For ...
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0answers
23 views

How to decide which sentiment analyzer is the better model?

Assume one has trained different sentiment analysis models that assigns sentiment scores to the financial news or documents. How would one should approach testing the different models and decide which ...
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0answers
81 views

Which interest rate model is the most popular

Hey on wikpedia (https://en.wikipedia.org/wiki/Short-rate_model) there are quite a few short rate models listed, but which models are the most commonly used now? Because such simple models as Vasicek ...
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1answer
51 views

Approach for studying price gaps in US equities

A price gap is defined as any day when the high / low / close price bar for that day does not overlap the previous day’s high / low / close price bar. I am interested in studying stock price gaps ...
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60 views

Quantitative Model classification

In the world of Quantitative model risk management, can you please tell me what is Model 1 type, ...
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0answers
112 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 ...
0
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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 ...
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0answers
91 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 ...
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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 ...
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61 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 ...
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0answers
55 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 ...
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0answers
74 views

mean reversion model estimation - what method?

how can I estimate this model for mean reversion?
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68 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 ...
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0answers
143 views

Stochastic Volatility for Stocks, FTSE

Can someone help me with calculating Stochastic Volatility (of stocks and options) using SAS or R or Matlab please? I am new to SAS and I am trying to use Heston model, White-Hull model or any other ...