One of the reasons the ARCH family of models is used is that you only need price data to generate the model. These data exist back to the 1800s, so ARCH is great for looking at volatility over very ...

FWIW, here's the approach I used. I keep the dates as an integer in YYYYMMDD form and merge the calls and puts in to a data frame both. Then I use ddply to operate on each matched call and put to find ...

Take the CAPM regression (it's not exactly correct, but it's instructional) $$(R_i - R_f) = \alpha_i + \beta_i (R_{mkt} - R_f) + \epsilon_i$$ The author is saying that these days the $(R_{mkt} - R_f)$ ...

There are plenty of market models -- capital asset pricing model (CAPM), conditional CAPM (CCAPM), intertemporal CAPM (ICAPM), and arbitrage pricing theory (APT). But any model, finance or otherwise, ...

(1) You analytically solve a stochastic differential equation (SDE) using Ito's lemma. Your second equation (the discretized one) is how you could model one path over one step. To find the solution, ...

If you're asking "can I get a prediction of a future price from an option chain", then, no, I don't think so. The value of an option does not depend on the underlying stock's drift, or price ...

We bet on a fair coin toss -- heads you get $\$100$, tails you get$\$0$. So the expected value is $\$50$. But it is unlikely that you'll pay$\$50$ to play this game because most people are risk ...

That value stocks are necessarily riskier than growth; that there has to be a hidden risk factor that we haven't yet found. The Lakonishok, Shleifer, and Vishny abstract says it better than I can: ...

The output of your model will be a realization of your assumptions. Shane's given you a great answer. Besides doing out of sample testing (i.e., calibrating on period X then testing in period Y only ...

I have no reference, but it's largely phonetic. Must variables in econ/finance are Greek versions English letter you'd want to use. $\omega$ for weight, $\rho$ for rate, $\epsilon$ for error, and so. ...

VIX is mechanically determined from the price of S&P500 call and put options. So if the demands for S&P500 calls/puts rise, then the prices rise, then the implied vol from these options rises. ...

So my first answer was off base. For some reason I was thinking first moment (idiosyncratic returns), but he's looking for second moment (idiosyncratic volatility). There is a line of research on the ...

Weak form market efficiency says that you can't predict prices based on past prices. Or that technical analysis doesn't work. I think that the tests of weak form market efficiency are pretty ...