# Questions tagged [models]

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### Convexity adjustment future/fra in practice

The topic of Future/FRA adjustment has already been addressed on a theoretical point view, roughly we need a rate model to calculate the covariance between the money market account of the discount ...
• 553
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### Cheyette Model vs Markov Functional Model

Just like to understand more about the model difference between 1d-Cheyette Model vs 1d-Markov Functional Model. Is there a model difference betweeen these 2?
• 346
53 views

### Simple short rate model that generates ZCB skew

Which is the simplest short rate model that generates ZCB vol skew ? I want to use it afterwards and do simple "on paper" qualitative development about its dynamic(I don't need a model I can ...
151 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
85 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 vote
101 views

### Identify upcoming stock price gaps in Implied Volatiltiy (quant / standardized approach)?

What you often obeserve in implied volatiltiy are higher levels of implied volatility for upcoming events like earnings or presentation of pharma data. For a human being which collects manual the ...
126 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 ...
• 63
81 views

Consider a payoff that pays a certain amount N of a vanilla Call (underlying: S, Maturity= T, strike:K). Every semester date Ts before T, if S>K(Ts), then N is increased by 1. This product seems ...
• 365
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• 135
1 vote
197 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 ...
• 895
1 vote
102 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 ...
• 895
122 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 ...
• 516
227 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 ...
713 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 $$\nu(x)=C\frac{e^{-Mx}}{x^{1+Y}}1_{x>0}+C\frac{e^{-G|x|}}{|x|^{1+Y}}1_{x<0}$$...
• 433
117 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
698 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 "...
• 443
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### 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 ...
• 27
226 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 \$\...
• 3,030
794 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 ...
• 169
1 vote
47 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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