Questions tagged [models]
The models tag has no usage guidance.
48
questions with no upvoted or accepted answers
8
votes
2
answers
612
views
A question about the Grossman-Miller Market Making Model
I don't have any solid background in finance, but I have a strong mathematics and physics background.
I am reading Algorithmic and high-frequency trading from A.Cartea, S.Jaimungal and J.Penalva, CUP (...
- 193
7
votes
0
answers
239
views
Seeking criticism of model assumptions
I have been trying to publish a new calculus and options model for seven years. I have been consistently desk rejected, so what I am trying to do is get criticism of my assumptions because they ...
- 4,159
6
votes
0
answers
115
views
What are the requirements for no arbitrage to exist in a chaotic/dynamical system?
Consider the continuous dynamical system
$$\alpha\ddot{S}+\dot{S}=\mathcal{F}(S,t),$$
such that $\alpha\in\mathbb{R}$ and $\mathcal{F}$ is real and analytic. We assume that if a solution for $S$ ...
- 128
6
votes
0
answers
390
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 ...
- 3,347
4
votes
0
answers
216
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 ...
- 41
4
votes
0
answers
112
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 ...
- 99
4
votes
0
answers
374
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
votes
0
answers
180
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 ...
- 161
3
votes
0
answers
488
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 ...
- 161
3
votes
0
answers
109
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 ...
- 183
3
votes
0
answers
104
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 ...
- 151
3
votes
0
answers
253
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 ...
- 896
2
votes
0
answers
97
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?
- 929
2
votes
0
answers
487
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 $a \in \mathbb{R}$ ...
- 445
2
votes
0
answers
87
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 ...
- 1,993
2
votes
0
answers
88
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 ...
- 319
1
vote
0
answers
94
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 ...
- 183
1
vote
0
answers
42
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 ...
- 627
1
vote
0
answers
58
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 ...
- 175
1
vote
0
answers
75
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++ ...
- 2,386
1
vote
1
answer
268
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 ...
- 215
1
vote
0
answers
217
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:
$$
\begin{cases}
df(t,T)=a(t,T)dt+\sigma(t,T)dW_t & (\mbox{rik-free})\...
- 171
1
vote
0
answers
50
views
Free DCF model database
Over the years, I have accumulated quite a few DCF models (some are my own and some are from others). I am wondering if there is any website where I can upload mine and download those of others so ...
- 181
1
vote
0
answers
33
views
Has there been studies done on changes in model performance post-crisis?
My question is, has there been done any studies on whether the efficiency and accuracy of pricing and risk-management of derivatives using different models and algorithms has changed after the ...
- 11
1
vote
0
answers
78
views
What kind of ARMA-GARCH model is that?
My question is what kind of ARMA-GARCH model is the following equation and how to specify it in rugarch R module:
$$r_{t+1}- r_t = \alpha_0 + \alpha_1r_t+\...
- 11
1
vote
0
answers
41
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 ...
1
vote
0
answers
370
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)'...
- 11
1
vote
0
answers
220
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 \...
- 767
1
vote
0
answers
1k
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 ...
- 191
1
vote
0
answers
682
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 ...
- 141
1
vote
0
answers
94
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 ...
- 3,347
1
vote
0
answers
353
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.
...
- 523
0
votes
0
answers
97
views
What is wrong with my HAR model - constantly increasing?
I am trying to code the HAR (and eventually the HARQ) from Bollerslev et al 2016 and Corsi 2009.
$$
RV_t = \beta_0 +\beta_1 RV^d_{t-1} + \beta_2 RV^W_{t-1}+\beta_3 RV^M_{t-1}+u_t
$$
Bollerslev ...
- 123
0
votes
0
answers
45
views
Derive the Probability of Default (PD) of private companies with Merton Model
Do you know a well used method how to calculate the PD of private companies using the Merton Model.
The main challenges I am facing is to get the appropriate volatility of the assets and the drift.
...
- 1
0
votes
0
answers
39
views
Stock price models with $m$-dependent returns
Geometric Brownian motion is a stochastic process that is famous for its use as a stock price model. For $\mu\in\mathbb R$, $\sigma\ge 0$ and $S_0>0$ fixed, it is defined as $$S_t = S_0 \exp\left(\...
0
votes
0
answers
68
views
Validity of Bermudan Swaption's Price/Greeks
I'm implementing a lot of stochastic models on my own for fun and I'm quite puzzled about the usual procedure concerning the correctnes of Bermudan swaptions prices and greeks ? How can you tell that ...
- 43
0
votes
0
answers
63
views
Italy Zero Coupon Yields
I am looking for historical data for Treasury bills and bond yields for Italy on a monthly or daily basis. Where can I get this data?
- 1
0
votes
0
answers
50
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, ...
- 103
0
votes
0
answers
64
views
Quantitative Model classification
In the world of Quantitative model risk management, can you please tell me what is Model 1 type, ...
- 245
0
votes
0
answers
119
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 ...
- 506
0
votes
0
answers
115
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 ...
- 13
0
votes
0
answers
145
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 ...
- 2,386
0
votes
0
answers
32
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 ...
- 73
0
votes
0
answers
72
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 ...
- 601
0
votes
0
answers
64
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 ...
- 291
0
votes
0
answers
89
views
mean reversion model estimation - what method?
how can I estimate this model for mean reversion?
0
votes
0
answers
80
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 ...
- 285
0
votes
0
answers
147
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 ...
- 33