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The Reformed Broker wrote a new blog post titled Soros: Enter Sandman
“These times are not business as usual."...
34 minutes ago
The Reformed Broker wrote a new blog post titled QOTD: Nick Colas on the Vix
a lot of the "Trump Trade" nonsense starting to unwind...
an hour ago
Quantitative Finance at arXiv wrote a new blog post titled Fatou Property, representations, and extensions of law-invariant risk measures on general Orlicz spaces. (arXiv:1701.05967v1 [q-fin.RM])
We provide a variety of results for (quasi)convex, law-invariant functionals defined on a general Orlicz space, which extend well-known results in the setting of bounded random variables. First, we show that Delbaen's dual characterization of the Fatou property, which no longer holds in a general Orlicz space, continues to hold under the assumption of law-invariance. Second, we identify the range of Orlicz spaces where the characterization of the Fatou property in terms of norm lower semicontinuity by Jouini, Schachermayer and Touzi still holds. Third, we extend Kusuoka's dual representation...
13 hours ago
Quantitative Finance at arXiv wrote a new blog post titled Calibration of a Four-Factor Hybrid Local-Stochastic Volatility Model with a New Control Variate Particle Method. (arXiv:1701.06001v1 [q-fin.MF])
We propose a novel and generic calibration technique for four-factor foreign-exchange hybrid local-stochastic volatility models with stochastic short rates. We build upon the particle method introduced by Guyon and Labord\`ere [Nonlinear Option Pricing, Chapter 11, Chapman and Hall, 2013] and combine it with new variance reduction techniques in order to accelerate convergence. We use control variates derived from a calibrated pure local volatility model, a two-factor Heston-type LSV model (both with deterministic rates), and the stochastic (CIR) short rates. Our numerical experiments...
14 hours ago
Quantitative Finance at arXiv wrote a new blog post titled Asymptotic efficiency of the proportional compensation scheme for a large number of producers. (arXiv:1701.06038v1 [q-fin.EC])
We consider a manager, who allocates some fixed total payment amount between $N$ rational agents in order to maximize the aggregate production. The profit of $i$-th agent is the difference between the compensation (reward) obtained from the manager and the production cost. We compare (i) the \emph{normative} compensation scheme, where the manager enforces the agents to follow an optimal cooperative strategy; (ii) the \emph{linear piece rates} compensation scheme, where the manager announces an optimal reward per unit good; (iii) the \emph{proportional} compensation scheme, where agent's...
14 hours ago
Quantitative Finance at arXiv wrote a new blog post titled Topology data analysis of critical transitions in financial networks. (arXiv:1701.06081v1 [q-fin.MF])
We develop a topology data analysis-based method to detect early signs for critical transitions in financial data. From the time-series of multiple stock prices, we build time-dependent correlation networks, which exhibit topological structures. We compute the persistent homology associated to these structures in order to track the changes in topology when approaching a critical transition. As a case study, we investigate a portfolio of stocks during a period prior to the US financial crisis of 2007-2008, and show the presence of early signs of the critical transition.
14 hours ago
Quantitative Finance at arXiv wrote a new blog post titled A Dual Method For Backward Stochastic Differential Equations with Application to Risk Valuation. (arXiv:1701.06234v1 [math.OC])
We propose a numerical recipe for risk evaluation defined by a backward stochastic differential equation. Using dual representation of the risk measure, we convert the risk valuation to a stochastic control problem where the control is a certain Radon-Nikodym derivative process. By exploring the maximum principle, we show that a piecewise-constant dual control provides a good approximation on a short interval. A dynamic programming algorithm extends the approximation to a finite time horizon. Finally, we illustrate the application of the procedure to risk management in conjunction with...
14 hours ago
Quantitative Finance at arXiv wrote a new blog post titled Economic Growth Model with Constant Pace and Dynamic Memory. (arXiv:1701.06299v1 [q-fin.EC])
The article discusses a generalization of model of economic growth with constant pace, which takes into account the effects of dynamic memory. Memory means that endogenous or exogenous variable at a given time depends not only on their value at that time, but also on their values at previous times. To describe the dynamic memory we use derivatives of non-integer orders. We obtain the solutions of fractional differential equations with derivatives of non-integral order, which describe the dynamics of the output caused by the changes of the net investments and effects of power-law fading memory.
14 hours ago
Quantitative Finance at arXiv wrote a new blog post titled Economics cannot isolate itself from political theory: a mathematical demonstration. (arXiv:1701.06410v1 [q-fin.EC])
The purpose of this paper is to provide a confession of sorts from an economist to political science and philosophy. A confession of the weaknesses of the political position of the economist. It is intended as a guide for political scientists and philosophers to the ostensible policy criteria of economics, and an illustration of an argument that demonstrates logico-mathematically, therefore incontrovertibly, that any policy statement by an economist contains, or is, a political statement. It develops an inescapable compulsion that the absolute primacy and priority of political theory...
14 hours ago
Wealth and Capital Markets Blog wrote a new blog post titled Roll over, don’t play dead
In my most recent report, Wings of a Butterfly: Regulation, Rollovers and a Wave of Optimization Software, I discuss the challenges the DoL conflict of interest rule poses to the $7 trillion IRA rollover business. These challenges center on the need for advisors to break down 401k plan costs and make apples-to-apples comparisons of proposed rollover solutions.   Why focus on the rollover? First, the rollover decision serves as a touchstone in the relationship between client and advisor. Trust sits at the center of recommendation to roll over, and seldom are the vulnerabilities of the...
21 hours ago
The Reformed Broker wrote a new blog post titled Barry on where to invest $10,000 now
My partner Barry Ritholtz joins a panel of professional investors for a Bloomberg panel on where to invest $10,000 now......
The Reformed Broker wrote a new blog post titled Hot Links: A Major Test
What I'm reading this morning ...