4pie0
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Using variance ratios to test for mean reversion
8 votes

of course you can use this test to elaborate on this matter. Basically this test measures the ratio of variance of series in period tn to n*variance of t preriod $\frac{Var(tn)}{nVar(t)}$ in short: ...

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Correlation decay in lognormal distribution
Accepted answer
7 votes

well, it is absolutely in agreement with theory. the correlation as measured by Pearson's coefficient $\rho$ is linear measure in the sense that the bounds [-1,1] are obtained only when ...

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Does implied vol vary for calls vs puts?
3 votes

First: what you use in the call or put formula is volatility of underlying; it is the same underlying, so volatility implied by call and put has to be the same. It is vol of underlying asset. ...

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How does the "risk-neutral pricing framework" work?
3 votes

I like this point of view on risk neutral pricing: risk neutral probability $q$ is such a probability that the expected possible price of the option at $t=T$ calculated with this probability and then ...

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How to justify a model that could not predict external factors?
2 votes

it was meant to be a comment, so please don't treat it like an answer, just suggestion. I think every department has its own standards. and if you want to constitute your model somehow, then you can ...

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Pairs trading: Question on non-negative profits, size of the positions and trading signals
1 votes

I do understand your confusion, for someone who has already started research in these topics there might be many questions. regarding size of position: it definitely doesn't have to be 1, or generally ...

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Time Varying Volatility
1 votes

The first and the second moment are independent, so even if returns are not autocorrelated the size of returns can be. of course. Example: generate path of variable with binomial distribution that ...

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How does one use the Johansen cointegration test in a linear time series model?
1 votes

no, you should use your original variables, no truncating, normalizing or whatever. And remember that you need Johansen only in case of more than one independent variable.

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Using cointegration to prove that a long-short strategy is market neutral (in CAPM sense)
1 votes

you get what should get. You can't prove that strategy long $X$ short $Y$ is market neutral: is strategy long EUR/USD short USD/CHF risk neutral? I wouldn't say that. It depends, on what? On ...

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Why the implied volatilities calculated are so different
1 votes

you can use this code from Uwe Wystup FX Options and Structured Products. you can find it online. it uses vega and taylor expansion (just to 1st derivative which is vega) to find vol. you have to have ...

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Kolmogorov-Smirnov test
1 votes

no. this test as same as any else can't say for 100% that distribution is normal. and how do you want to use it to test market efficiency? you didn't mention. basically to test market efficiency the ...

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Theta's effect for OTM options
0 votes

$\Theta$ measures the rate of change of the option value $V$ with time $t$ if the underlying asset $S$ doesn't move. since deep OTM options are almost worthless this change will be small if the asset ...

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