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by Alan
January 12th, 2003, 4:47 pm
Forum: Technical Forum
Topic: How much volatility is due to "trading"?
Replies: 27
Views: 191393

How much volatility is due to "trading"?

<r><blockquote>Quote<hr><i>Originally posted by: <b>Johnny</b></i>Alan5. Risk preferencesEconomists tend to assume that risk preferences change only slowly and can therefore be assumed to be "fixed in the short run". However, empirical testing shows (a) that preferences can change extremely quickly,...
by Alan
January 12th, 2003, 1:23 am
Forum: The Quantitative Finance FAQs Project
Topic: What is the Martingale approach to pricing?
Replies: 25
Views: 216193

What is the Martingale approach to pricing?

<t>QuoteOriginally posted by: OmarThere has to be a better, more intuitive way to explain the role of martingales in finance. mj's post in the "why does risk-neutral valuation work" gave some nice intuitive explanations for the connectionbetween martingales and the no-arbitrage theorem. I just wante...
by Alan
January 11th, 2003, 6:43 pm
Forum: The Quantitative Finance FAQs Project
Topic: What is the Martingale approach to pricing?
Replies: 25
Views: 216193

What is the Martingale approach to pricing?

<t>Folk Theorem*. Let S be a price process on a given probability space with probability (measure) P.Then there is an absence of arbitrage opportunities if and only if there exists a probability P*,equivalent to P, such that S is a martingale under P**(from "A Partial Inroduction to Financial Asset ...
by Alan
January 11th, 2003, 1:10 am
Forum: Technical Forum
Topic: How much volatility is due to "trading"?
Replies: 27
Views: 191393

How much volatility is due to "trading"?

<t>QuoteOriginally posted by: AnthisTrader's income? Clarify please. I guess you dont mean the "rogue trader" paradigm. If yes it is an issue of principal-agency theoryFirst, David, the intraday volatility for the 15 min doesn't matter to me. I just picked 15 min. as a reasonabletime to let the mark...
by Alan
January 11th, 2003, 12:09 am
Forum: Technical Forum
Topic: How much volatility is due to "trading"?
Replies: 27
Views: 191393

How much volatility is due to "trading"?

<r>QuoteOriginally posted by: Anthis<brPreferences and utility functions change if at all only slowly and gradualy and the main reason are changes in a person's income level due to the law of diminishing marginal utility.Eventually if NYSE was about to change in one weekly trading session I I expect...
by Alan
January 10th, 2003, 7:45 pm
Forum: Technical Forum
Topic: How much volatility is due to "trading"?
Replies: 27
Views: 191393

How much volatility is due to "trading"?

<t><i>When an economist says that there is "too much" volatility he means that markets are more volatile than his theories suggest. The economist wants to improve his theory of volatility. I don't understand why that should be any more silly than trying to have a theory of what price something shoul...
by Alan
January 10th, 2003, 6:47 pm
Forum: Technical Forum
Topic: How much volatility is due to "trading"?
Replies: 27
Views: 191393

How much volatility is due to "trading"?

<t>QuoteOriginally posted by: JabairuStorkAny thoughts?Good observation about auto-correlation. However, suppose we write the weekly (log) return as the sum of 5 dailies. Now suppose there are two different "worlds", both hypothetical, so maybereza is right, this is philosphy :-)In world I, let's sa...
by Alan
January 10th, 2003, 5:54 pm
Forum: Technical Forum
Topic: How much volatility is due to "trading"?
Replies: 27
Views: 191393

How much volatility is due to "trading"?

<t>I don't think it's so philosophical. To quantify it a little more, supposethe NYSE actually does decide to open just once a week for 15 min. Now we can measure price returns weekly and there will be a weeklystandard deviation of returns sigma. So I am asking for opinions about theratio R of the w...
by Alan
January 10th, 2003, 4:48 pm
Forum: Technical Forum
Topic: How much volatility is due to "trading"?
Replies: 27
Views: 191393

How much volatility is due to "trading"?

<t>There is a school of economists who believe that the stock market has "too much" volatility.I am not an economist, but this seems silly to me. Regardless of the "fundamentals", it'speople who price things and they can be fickle if they want, change their risk attitudes,horizons, whatever. But I a...
by Alan
January 9th, 2003, 8:30 pm
Forum: The Quantitative Finance FAQs Project
Topic: What is a jump-diffusion model and how does it affect option values?
Replies: 53
Views: 200715

What is a jump-diffusion model and how does it affect option values?

<t>QuoteOriginally posted by: MartingaleI will take a shot at here. "complete market with discontinous security prices" gives an example of pure jump martingales(with an set of parameters beta) named Azema martingales which has the predictable representation theorem( every contigent claim is repicab...
by Alan
January 8th, 2003, 9:57 pm
Forum: Technical Forum
Topic: Lie-algebraic approach
Replies: 148
Views: 196612

Lie-algebraic approach

QuoteOriginally posted by: VincentThanks for Caveny's detailed explanation. Alan, you have a good physical maths background as well as quant finance knowledge, what is your point of view?sorry, Vincent, I'm not familiar with that work.
by Alan
January 8th, 2003, 8:44 pm
Forum: The Quantitative Finance FAQs Project
Topic: What is quantitative finance?
Replies: 26
Views: 225927

What is quantitative finance?

<t>QuoteOriginally posted by: DoubleSixNow imagine a situation where, instead of states of the world being indexed by values of my (sometimes unobservable, and non tradable) state variables, states of the world are simply indexed by <i>the market prices of financial instruments</i>. This implies the...
by Alan
January 8th, 2003, 4:01 pm
Forum: The Quantitative Finance FAQs Project
Topic: What is quantitative finance?
Replies: 26
Views: 225927

What is quantitative finance?

<t>QuoteOriginally posted by: DoubleSix<blockquote>QuoteTherefore QF poses a dilemma for Popper. Should he rate it as science or not?- It is "over-falsifiable," so it falls this side of his demarcation principle, and is not "metaphysical, unverifiable, non-sense."- Yet it <i>does not</i> verify his ...
by Alan
January 8th, 2003, 2:34 pm
Forum: The Quantitative Finance FAQs Project
Topic: What is a jump-diffusion model and how does it affect option values?
Replies: 53
Views: 200715

What is a jump-diffusion model and how does it affect option values?

<r>QuoteOriginally posted by: OmarI think people should be aware of the works of Svetlana Boyarchenko and collaborators on option pricing under Levy processes (brought to my attention by Alan)<URL url="http://www.eco.utexas.edu/facstaff/Boyarchenko/She">http://www.eco.utexas.edu/facstaff/Boyarchenko...
by Alan
January 8th, 2003, 3:51 am
Forum: The Quantitative Finance FAQs Project
Topic: What is a jump-diffusion model and how does it affect option values?
Replies: 53
Views: 200715

What is a jump-diffusion model and how does it affect option values?

<t>QuoteOriginally posted by: OmarAlan,Which model would give you a vol smile that flattens as expiry date gets further away in time? Is there a simple/natural way to get that?all the models do that (s.v. & jump-diffusions). In fact, the market smile curves flatten rather slowly,so you want the ...
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