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5 votes
Accepted

A good book on option pricing from theoretical and practical aspect

My recommendations would be the following: For starters in Quantitative Finance: Hull - Options futures and other derivatives Wilmott - Quantitative Finance For an introduction to volatility: ...
KT8's user avatar
  • 855
4 votes

A good book on option pricing from theoretical and practical aspect

Here is some interesting things to consider, beyond the typical bibles like Hull and Wilmott etc. For either route (buy/sell side), in terms of math, I think strong stochastic process would be great (...
Kai's user avatar
  • 123
3 votes
Accepted

Effect of back-transforming forecasted mean of log returns to get forecasted mean of price

Assume the stock index is given by $S_t$ and you form a forecasting model for the log-returns $r_{t+1}=\log(S_{t+1}/S_{t})$. You are then interested in the expected next period stock index level $$\...
fes's user avatar
  • 1,727
3 votes

Roll Critique - CAPM and mean variance tautology?

Let $R$ denote the vector of risky asset returns, $\Sigma:=\text{Cov}[R]$ the covariance matrix of returns, $\mu:=E[R]$ the vector of expected returns, and $r:=R_f$ the risk-free rate. Recall that the ...
Alphie's user avatar
  • 131
2 votes

A good book on option pricing from theoretical and practical aspect

My recommendation are the books "Stochastic Calculus for Finance II: Continuous-Time Models" by Shreve or "Arbitrage Theory in Continuous Time" by Björk.
0alessandrocicalese0's user avatar
2 votes

Оptimal strategy when throwing dice

Using backward induction: suppose there are only 2 throws instead of 3. You roll the first dice, and the decision should be to keep a 4,5,6 and to roll again on a 1,2,3 (in which case the expected ...
dm63's user avatar
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2 votes
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How to calculate holding period return of a long-short strategy?

The generic way to compute such returns is to multiply the asset returns over a specific period with the weights at the start of that period. For a short position, the weight is negative. If you do ...
Enrico Schumann's user avatar
2 votes

Оptimal strategy when throwing dice

Your decision is based on the expected value of the following throws. If it is higher than what you have right now, you throw again. In a two throw game, you would use the second throw if your first ...
test's user avatar
  • 21
1 vote

What is the proper way to derive risk definitions from utility functions?

My reply was too long, so I am posting it as a separate comment. Thank you Kermittfrog for the derivation! (I think you meant to write $\rho(W_0)$ instead of $\rho(w)$ in the value of $w^*$.) Since ...
Machinus's user avatar
1 vote
Accepted

What is the proper way to derive risk definitions from utility functions?

Note: This is (still) the starting point to a proper answer. If time permits, I'll add some flesh from time to time. From a mathematical point of view, in order to obtain the optimal investment ...
Kermittfrog's user avatar
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1 vote

Оptimal strategy when throwing dice

This is a standard interview question in quantitative finance. This article provides a clear description, as does Mark Joshi's "Quant Interview Questions and Answers".
Rylan's user avatar
  • 625
1 vote

Hypothesis Test Contradiction?

The third test considers possibility of both means being non 0 but equal and that may as well be quite plausible, as in the coin example below. Consider flipping 2 coins and getting 9 and 6 heads on ...
Arshdeep's user avatar
  • 2,451
1 vote

A good book on option pricing from theoretical and practical aspect

I have upvoted @KTB for an excellent list. There's one more that I would have placed at the very top of the list: Volatility Trading by Euan Sinclair
Brian B's user avatar
  • 14.9k
1 vote

Using the Fama-French 5 factor model in Panel Data

You can run that panel regression you don't have to use industry specific FF5 factors. That would actually make no sense at all (unless you want to dwell into weak factors, which does not seem to be ...
phdstudent's user avatar
  • 8,421
1 vote

Asset prices Boom,Bust and Recovery cycles

Hi there and welcome to the forum. I can't say for recovery cycles, but I used this paper (https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3299498) on a project for a master's course. It is mostly ...
KaiSqDist's user avatar
  • 1,409
1 vote

A good book on option pricing from theoretical and practical aspect

Hull's Options, Futures, and Other Derivatives.
AlRacoon's user avatar
  • 6,632
1 vote

Should I use an arithmetic or a geometric calculation for the Sharpe Ratio?

Putting it succintly: It will depend if the returns are arithmetic or logarithmic in the first place. If they are arithmetic returns, then the geometric mean will have to be used. If they are ...
D.matoschaves's user avatar

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