12
votes
Accepted
Anyone has detailed explanation on how to use epstein-zin preferences in asset pricing models
Recursive Utility
The traditional approach to consumption-based asset pricing includes time separable (additive) expected utility functions,
$$U(C_t,C_{t+1})=u(C_t)+\beta \mathbb{E}_t[u(C_{t+1})],$$ ...
- 16.3k
5
votes
Collateral replication argument
Let me know whether this helps, but the author mentions a paper from Fujii and Takahashi; I have been looking for it on the internet and I have found what seems to be a version of it: Collateral ...
- 8,219
4
votes
Accepted
Why does the definition of the riskless asset vary in discrete vs continuous time?
Let us say we have a yearly interest rate of $r$ that compounds over $n$ periods. With annual compounding that means $n=1$, with semi-annual compounding that means $n=2$ and with daily compounding ...
- 845
4
votes
Accepted
theoretical reason for which we can use monte carlo simulation for option pricing
Simplest explanation is Feynman-Kac theorem
https://en.wikipedia.org/wiki/Feynman%E2%80%93Kac_formula
Blackscholes is a parabolic PDE
Solution can be written as a conditional expectation over an ...
- 356
3
votes
Is it possible to build a computer model to simulate a market to prove whether efficient theory is true or not?
Let's begin from the start.
At its core, market efficiency is a statement about the compensation for risk embedded in asset prices. So, you can think of this issue as involving 3 quantities: (1) the ...
- 2,536
3
votes
Accepted
Why someone would prefer CFDs rather than stocks?
Leverage, tax, ease of taking short positions and the risk of losing more than your investment are the main differences to a stock. Note, CFDs are a derivative on a stock hence the similarity in the ...
- 79
3
votes
Starting Point for understanding Financial Theory for a Statistician
Other than the books described by @develarist, there are also some alternative considerations which I have grouped into overall subjects:
Financial econometrics/Financial modelling:
Analysis of ...
- 4,921
3
votes
Accepted
Starting Point for understanding Financial Theory for a Statistician
Brooks - Introductory Econometrics for Finance is a very comprehensive, accessible overview of all the mainstream models for capturing non-normality, serial correlation, non-stationarity and other ...
- 3,090
2
votes
What concepts are the most dangerous ones in quantitative finance work?
The most dangerous concept is hidden in the underlying rules of mathematics, not economics or finance. Many of the other posts only exist because this concept exists. I know because it took me ...
2
votes
Why should there be an equity risk premium?
This one is far from straight-forward, although bear with me. It is possible to infer from first principles an ERP reasonably close to normative consensus expectations.
The attached from Howard ...
- 5,141
2
votes
What are the reasons that make stock return - bond yield correlation a meaningful one?
The relationship of stocks to bonds is a very complicated question. The way I think of it is like this.
Bonds are discounted PV of known future cash flows. Equities are discounted PV of unknown ...
- 9,440
2
votes
Is it possible to build a computer model to simulate a market to prove whether efficient theory is true or not?
Yes. It's possible to simulate markets. It's called Agent based model and you can read more about it on wikipedia:
https://en.wikipedia.org/wiki/Agent-based_model
Basically you assign simple rules ...
- 41
2
votes
What is "position" when referring to the holders of a bond?
In general, for bonds, loans, and other debt instruments, "position" on reports usually, not always, shows the original face value. For example, the bond issuer promised to pay 10 million, ...
- 13.2k
1
vote
Accepted
What limits the maximum possible returns when shorting crypto?
Probably the best real-world example of this is the Game Stop short. Of course, that short sale was mishandled.
There are problems with your idea. As you supply coin for sale, you move along the ...
- 4,329
1
vote
question on XIRR (excel)
@lostinOracle.... Sorry for the late response. -45.27 is not the correct answer; nor is any approximation between -45.265 and -45.275, recognizing that -45.27 is undoubtedly rounded.
And it is not ...
- 31
1
vote
question on XIRR (excel)
Found the answer and leaving an answer here in case anyone runs into the same question:
Again, the problem was I couldn't get XIRR+goal seek to help me solve for the last value on 1/1/2019 needed to ...
- 113
1
vote
Firm specific risk
I think that there are two points to be made here. First, the distinction between returns and price. Secondly, the agnosticism of quantitative finance to upside versus downside risks.
"...
- 3,025
1
vote
Firm specific risk
...but according to traditional finance it wouldn't.
Why not?
If valuation is about discounting expected future cash flows, then after an oil spill, investors expect hefty fines, i.e. cash outflow, ...
- 745
1
vote
How can I measure wealth gain (loss) due to inequality?
Economists generally think of three similar, but distinct, metrics of economic disparity: inequality of income, consumption and wealth. Income inequality is the most commonly cited measure, ...
- 173
1
vote
Has spectrum analysis ever been used successfully to analyse historical price data?
Checkout spectro.space - A CryptoCoin Analyzer with Spectrograms.
I just launched it, and it's is a free web-based graphing tool that allows you to view over 2000 different cryptocurrencies, and a ...
- 111
1
vote
Is there any theoretical basis for pattern-recognition strategies?
I do not believe market is random and neither do many members of this forum. Simply by that notion you believe that, market follow a systematic and cyclical approach. The success of any investor is to ...
- 11
Only top scored, non community-wiki answers of a minimum length are eligible