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by taneururer
April 23rd, 2010, 11:56 am
Forum: Student Forum
Topic: Settle a Bet - Heston Model
Replies: 5
Views: 28718

Settle a Bet - Heston Model

<r>I'm thinking of making the other party buy me these:<URL url="http://www.allenedmonds.com/aeonline/product_6486225_1_40000000001_-1?categoryId=120552&top_category=120552As"><LINK_TEXT text="http://www.allenedmonds.com/aeonline/pr ... y=120552As">http://www.allenedmonds.com/aeonline/product_64...
by taneururer
April 22nd, 2010, 3:16 pm
Forum: Student Forum
Topic: Settle a Bet - Heston Model
Replies: 5
Views: 28718

Settle a Bet - Heston Model

<t>Without going into why this was disputed, I believe the following is true:The Heston model will produce the same option prices if one multiplies the vol of vol (sigma) and correlation of z1 and z2 by -1 with all other variables being held constant.In other words, the model is the same when using:...
by taneururer
February 11th, 2010, 1:10 pm
Forum: Technical Forum
Topic: skewness/kurtosis time scaling
Replies: 11
Views: 34785

skewness/kurtosis time scaling

<t>If it helps, I did try this will Monte-Carlo simulations of T-distributed returns (say, with 5 or 10 degrees of freedom).The square root rule held for the daily to weekly volatility.For kurtosis, the 1/N rule was pretty close.For five dof:Daily Kurtosis: 5.25Weekly Kurtosis: 1.116Of course, the r...
by taneururer
February 9th, 2010, 3:01 pm
Forum: Economics Forum
Topic: Homo Economicus
Replies: 43
Views: 47623

Homo Economicus

<r>As someone who is more or less trained as an economist, I'll take a stab at this.1) Most economists do not have a math fetish. However, it is the easiest tool available to keep one’s logic straight. Some of the best papers and models employ very little math. Hotelling’s model of location is a goo...
by taneururer
February 5th, 2010, 1:15 pm
Forum: General Forum
Topic: The most foolish theorem ever...
Replies: 134
Views: 45085

The most foolish theorem ever...

<t>What does it mean to be purely financed by debt? Equity is the residual claim on the firm, but if there is no equity then debt now controls the residual claim on all assets and cash flows.In other words, in a corporate structure, debt cannot exist without equity (ignoring a firm that is in a bank...
by taneururer
January 5th, 2010, 5:58 pm
Forum: Technical Forum
Topic: Delta in Variance Swaps
Replies: 10
Views: 40695

Delta in Variance Swaps

<t>Intraday there is a delta if your variance swap is being marked based on daily movements.If you were long the swap and mid-day the product was trading higher, then you would profit if the underlying continued to move up and, if the underlying moved down from its intraday price then you would be g...
by taneururer
November 18th, 2009, 5:34 pm
Forum: Programming and Software Forum
Topic: constrained optimisation
Replies: 10
Views: 35255

constrained optimisation

<t>For these types of problems, I always found it better to transform variables and use unconstrained Nelder-Mead/Powell.For any parameter that must be positive, let the optimizer choose the log of the variable.For a number that needs to be [-1,1], let the optimizer use any real number. Transform it...
by taneururer
November 5th, 2009, 3:21 pm
Forum: General Forum
Topic: The US deficit myth
Replies: 67
Views: 39183

The US deficit myth

<t>What would interesting is if one could get an estimate of residual value implied by these spreads. In the past, there has been positive recovery rates for sovereign debt from 30% in Argentina to 70% in the Ukraine.If there is reasonably high implied recovery rate, then these spreads implied a pre...
by taneururer
November 4th, 2009, 10:02 pm
Forum: General Forum
Topic: The US deficit myth
Replies: 67
Views: 39183

The US deficit myth

<t>The question is this: given the debt load of the US, how can we explain the CDS market's spreads?5 CDS spreads:Germany: 20.7USA: 22.9UK: 52.4Japan: 63.5Spain: 72.7China: 82.2Brazil: 132.7Ireland: 144.4Russia: 188.8Three possible answers:1) The market believes that the US is still relatively credi...
by taneururer
October 23rd, 2009, 8:32 pm
Forum: The Quantitative Finance FAQs Project
Topic: What are the stupidest things people have said about risk neutrality?
Replies: 40
Views: 88425

What are the stupidest things people have said about risk neutrality?

<t>Hopefully my brain is working correctly, but isn't this statement incorrect?"If the current market underprices the underlying, then risk-neutrality will underprice the call and, by put-call parity it will also underprice the put."If the market is truly underpricing the underlying, wouldn't this m...
by taneururer
October 16th, 2009, 1:16 pm
Forum: General Forum
Topic: Real live example of testing and monitoring cointegration for pair strategy
Replies: 9
Views: 36098

Real live example of testing and monitoring cointegration for pair strategy

<r>If memory serves me, if you use the two step method of testing the residuals, you will need to use different critical values than if you were just testing for a time series being I(0). The values can be found in Engle and Granger 1987. But I think the last slide of this pdf is correct:<URL url="h...
by taneururer
July 23rd, 2009, 1:39 pm
Forum: General Forum
Topic: Find the moral frequency
Replies: 9
Views: 37455

Find the moral frequency

Liquidity is added to the system not because you can transact at high speeds but because you can cancel/remove orders at high speeds. You can feel more confident in your current order/quote if you have the ability to quickly change your mind. My opinion of course.
by taneururer
July 20th, 2009, 7:18 pm
Forum: General Forum
Topic: fx implied volatility
Replies: 9
Views: 54524

fx implied volatility

<r>Could the use of implied betas help? Not really sure if this technique is applicable here.<URL url="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1416753"><LINK_TEXT text="http://papers.ssrn.com/sol3/papers.cfm? ... id=1416753">http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1416753</LINK...
by taneururer
June 18th, 2009, 7:24 pm
Forum: General Forum
Topic: Share terminal value!
Replies: 26
Views: 41212

Share terminal value!

<t>My point is that having a random component does not equate to risk. If you use a CAPM type model then the beta for your biotech firm is zero. Its discount rate is thus equal to the risk-free rate. If God told that if coin flip resulted in one of the following:1) Firm goes bankrupt but the economy...
by taneururer
June 18th, 2009, 4:58 pm
Forum: General Forum
Topic: Share terminal value!
Replies: 26
Views: 41212

Share terminal value!

<t>I'm a bit late to this, but are you discussing the right terminal value? In other words, for pricing stocks one could use DCF which requires an estimate of a terminal value. One might use the standard formula of:(CF(t-1) * (1 + g)) / (Discount Rate - g)Also, in the biotech example the current val...
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