# Tag Info

Accepted

### Preferred Option pricing model

General Comment: In industry, you're effectively an engineer/mechanic. You choose the best tool for the job, and there is no 1 tool that works with everything because they all have different benefits ...
Accepted

### Reconciling Two Claims About Volatility Under Fat Tails

I don't think the claim that "Lévy alpha-stable distributions are better descriptors of returns" is universally accepted. While Mandelbrot (and others before him) has correctly identified ...
• 233
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### Model to Predict the Change in IV of an Option

One approach that I have seen being used is to try to model the (joint) dynamics of the forward at-the-money volatility as well as its first one or two derivatives. The idea is to find a ...
• 6,064
Accepted

### GARCH volatility modeling, squared returns, and convergence

Assume that your stationary time series (here a daily close-to-close log-returns' series) is modelled as follows $\forall t \in \mathcal{T}=\{1,...,N\}$ \begin{align} r_t &= E_{t-1}[r_t] + \...
• 14.7k
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### Model reference price of Limit order book

This reference price is also sometimes called intrinsic price. One of the simplest ways to improve it in regards to the mid-price (assuming you have the depth data) is the following: define a ...
• 1,022
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### how are financial data with sparse and asynchronous features imputed in predictive modeling?

There is large literature on MIDAS (mixed-frequency data sampling) models, the leading scholars being Eric Ghysels and Rossen Valkanov — google their research for references. However, the ...
• 932
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### Why do we not use copula for forward starting options?

One is exploring forward volatility of a price of a single asset (joint distributions from within a process), the other explores correlation of two prices at the same time for two different ...
• 5,053

### Is there a way to meaningfully generate daily returns from monthly?

This is a commonly seen problem, and also relates to situations in which one is dealing with some less-liquid underlyings. I will describe a method that you could think of as "stochastic backfilling" ...

### Why do we usually use normal distribution and not Laplace distribution to generate stochastic process?

If you're willing to drop the requirement to have continuous paths, or rather, if you're willing to relax it, it is possible to have a bigger class of stochastic processes called Lévy processes. The ...
• 1,527

### Model to Predict the Change in IV of an Option

I would say that Derman's 99 paper on "Regimes of Volatility" (also called volatility "stickiness assumptions" by some practitioners) is an excellent place to start your investigations. Here is the ...
• 14.7k

### Accrual in Default Derivation of Credit CDS Curve

The accrual on default is like the accrued interest on a bond. A credit default swap can be looked as a synthetic bond. As such, with each passing day, interest is earned to the seller of protection ...
• 6,642
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### why calibrate volatility and fix the mean reversion

Fixing the mean reversion, and parameterizing the volatility as a step function or as a piecewise linear function, the volatility can be bootstrapped exactly to a set of vanilla options sorted by ...
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• 514
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### Is this the correct way to forecast stock price volatility using GARCH

I have solved this problem by performing a rolling forecast the following way. I am unsure (1) if this rolling forecast is correct, and (2) how to then perform a rolling forecast 30 days into the ...
• 193
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### Mathematical models for personal finance decisions

I assume you mean individual economic decisions such as saving, pension, purchasing, and risk taking etc. and all the underlying rational and irrational behaviours. These fall under the behavioural ...

### Why do Factor Models set up their factors differently from regression?

Thanks for editing your original post to show that betas are in front of the factors. In factor models, $\beta$ are factor loadings (regression coefficients) while $X$ are factor exposures (...
• 3,060
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### Mean Reverting Heston Model?

Let us start with the classical Heston model with underlying price $S_t$ and variance $v_t$, \begin{align} \frac{dS}{S}&=\mu dt+\sqrt{v_t}dW_1\\ dv_t&=\kappa(\theta-v_t)dt+\sigma\sqrt{v_t}dW_2 ...
• 6,977
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### Can an IRS have a different payment calendar by leg?

For IR swaps based on USD LIBOR, it is standard to to have different payment frequencies (quarterly v semiannual) and daycounts and to have two separate kinds of calendars: payments and, for a ...
• 12.6k
Accepted

### Out of Sample Results Decay Rapidly With Prediction Window or Embargo

This is a complex question. Let me reformulate its main components to try to give a generic answer: if a relationship is non-stationary and I capture it via a model, I expect the explanatory power of ...
• 12.4k