Questions tagged [validation]

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Validator for Risk-Neutral Distributions Derived from Option Prices

I've developed a validator for risk-neutral distributions. I did this for the purpose of testing the risk-neutral distributions generated by a Spectral Analysis risk-neutral density recovery method, ...
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2 votes
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222 views

Validating an option-implied risk-neutral distribution by integrating it twice and comparing the resulting "prices" with the original ones

From Breeden-Litzenberger, we know that the second derivative of a European call option's price with respect to the strike price is equal to the risk-neutral probability density function of the ...
v.y.'s user avatar
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Does a 10-K/10-Q report contain an estimate of share market price? [closed]

I am trying to find a way to validate available stock market data (because I found so much disagreement between different sources) and went through a 10-K report, hoping to find any mentioning of the ...
user2845840's user avatar
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110 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 ...
Hilbert's user avatar
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10 votes
2 answers
2k views

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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Train/test: why 80:20 split performed better than 90:10 split?

Playing with Random Forest Classifier, I am wondering what could cause in a 80:20 split the test results to perform better than in a 90:10 split? With 2000+ data points and: with 80:20 split, ...
kobo's user avatar
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1 vote
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170 views

Multivariate combinatorial purged cross-validation

Combinatorial purged cross-validation (CPCV) is a technique for backtesting strategies while purging and embargoing observations in a time series. CPCV improves upon classical k-fold and walk-forward ...
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Sampling and cross-validating with tick, volume and dollar bars

Financial data is usually structured with time bars. Other sampling techniques include: tick bars volume bars dollar bars. These are so-called sampling techniques to better identify signals and ...
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2 votes
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The discontinuity when applying the combinatorial purged cross-validation

In Marcos Lopez de Prado's book, Advances in financial machine learning, he recommends using the combinatorial purged cross-validation(CPCV) for backtesting. His motivation is sensible. Through the ...
hbadger19042's user avatar
1 vote
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Is C(P)CV similar to boostrap?

I am writing to ask if the Combinatorial (Purged) Cross-Validation" method of Marcos Lopez de Prado's "Advances in Financial Machine Learning" book is similar to the idea of bootstrap. If not, what is ...
Lydia's user avatar
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2 votes
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LGD performing model - LGD estimate vs LGD observed

LGD (Loss Given Default) performing model is developed on through the cycle sample which consists of loans in default. What I want is to compare LGD estimate and LGD observed (realized). LGD observed ...
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Berkowitz test for CVaR backtesting

I want to test CVaR using the Berkowitz test (focus on the left tail). I have a couple of doubts: Do I need to transform only actual losses that are above CVaR; In the first transformation, whether ...
user31388's user avatar
1 vote
0 answers
152 views

PD validation in the low/no default setting

The topic of this question is the validation as prescribed in the Basel N ($N \ge 2$) framework. The task is given the probability of default $p_k$ for $K$ rating classes at time $t$ and the outcome ...
Richi Wa's user avatar
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1 vote
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Testing whether a process is a Wiener process [closed]

Ideally I would like links to code implementations (eg. Matlab ) or book/paper references, but I would appreciate suggestions on various methods. Update: I was hoping to attract people who test the ...
Thomas Kojar's user avatar
5 votes
2 answers
615 views

ES not elicitable

Expected Shortfall is not elicitable as some papers have pointed out. That simply means that there is no scoring function that elicits ES. My question is, does this imply that Expected Shortfall ...
Eren's user avatar
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1 vote
1 answer
372 views

Kfold cross validation: how to handle hold-out periods

I want to backtest a strategy using K-fold cross validation. Assume I have a period of 300 days in my backtest. I divide it into 30 folds of 10 days each. On day 1 of a fold, I enter a trade, and ...
PaeneInsula's user avatar
13 votes
3 answers
1k 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 ...
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Examples for the option model validation

When implementing a code for the new model, even if it provides sensible price, it is still a good idea to compare it against some benchmarks, even in the special case of constant volatility Black-...
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1 vote
1 answer
670 views

Validation of Bates SVJ model

I have just finished implementing the Bates model for pricing European call options. To check results, I have been looking for a validation set where I could see the Bates parameter values and ...
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