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The Reformed Broker wrote a new blog post titled I’m out politicking today
Some notes from my travels ...
7 hours ago
Quantitative Finance at arXiv wrote a new blog post titled Universal Exponential Structure of Income Inequality: Evidence from 60 Countries. (arXiv:1612.01624v1 [q-fin.EC])
Economic competition between humans leads to income inequality, but, so far, there has been little understanding of underlying quantitative mechanisms governing such a collective behavior. We analyze datasets of household income from 60 countries, ranging from Europe to Latin America, North America and Asia. For all of the countries, we find a surprisingly universal rule: Income distribution for the great majority of populations (low and middle income classes) follows an exponential law. To explain this empirical observation, we propose a theoretical model within the standard framework of...
19 hours ago
Quantitative Finance at arXiv wrote a new blog post titled Stability of calibration procedures: fractals in the Black-Scholes model. (arXiv:1612.01951v1 [q-fin.MF])
Usually, in the Black-Scholes pricing theory the volatility is a positive real parameter. Here we explore what happens if it is allowed to be a complex number. The function for pricing a European option with a complex volatility has essential singularities at zero and infinity. The singularity at zero reflects the put-call parity. Solving for the implied volatility that reproduces a given market price yields not only a real root, but also infinitely many complex roots in a neighbourhood of the origin. The Newton-Raphson calculation of the complex implied volatility has a chaotic nature...
19 hours ago
Quantitative Finance at arXiv wrote a new blog post titled Multi-Purpose Binomial Model: Fitting all Moments to the Underlying Geometric Brownian Motion. (arXiv:1612.01979v1 [q-fin.PR])
We construct a binomial tree model fitting all moments to the approximated geometric Brownian motion. Our construction generalizes the classical Cox-Ross-Rubinstein, the Jarrow-Rudd, and the Tian binomial tree models. The new binomial model is used to resolve a discontinuity problem in option pricing.
19 hours ago
The Reformed Broker wrote a new blog post titled Let’s say you’re not optimistic about the next four years…
Call it an emotional hedge with the added kicker that you might actually make some money should your worst fears be realized. ...
The Reformed Broker wrote a new blog post titled Sugar Pills
I know I’m doing a lot of stuff about the alleged “Trump Rally” lately but I have good reasons: First of all, it’s the most dominant story in the market place by far now that the Fed is basically PGing a hike. And second, it’s absolutely absurd and people are running around acting like maniacs,......
The Aleph Blog wrote a new blog post titled The Beauty of Old Ideas
Photo Credit: Daniele Dalledonne || Ever been to a place where everything was a little past its prime, but showed that it was a beautiful place in its time?One of the great draws in reading investment writing is the lure of “hot tips.”  Everyone wants an investment idea that they can put a lot of money into that will reward buyers (or shorts) with a quick and large score.  Thus most publications try to lure you in with articles like these, whether they will work or not.We live in an era where market players scour as much fresh data as possible to make money, because there is...
Quantitative Finance at arXiv wrote a new blog post titled How many market makers does a market need?. (arXiv:1612.00981v1 [q-fin.MF])
We consider a simple model for the evolution of a limit order book in which limit orders of unit size arrive according to independent Poisson processes. The frequency of buy limit orders below a given price level, respectively sell limit orders above a given level are described by fixed demand and supply functions. Buy (resp. sell) limit orders that arrive above (resp. below) the current ask (resp. bid) price are converted into market orders. There is no cancellation of limit orders. This model has independently been reinvented by several authors, including Stigler in 1964 and Luckock in...
2 days ago
Quantitative Finance at arXiv wrote a new blog post titled Long-Term Growth Rate of Expected Utility for Leveraged ETFs: Martingale Extraction Approach. (arXiv:1612.01013v1 [q-fin.MF])
This paper studies the long-term growth rate of expected utility from holding a leveraged exchanged-traded fund (LETF), which is a constant proportion portfolio of the reference asset. Working with the power utility function, we develop an analytical approach that employs martingale extraction and involves finding the eigenpair associated with the infinitesimal generator of a Markovian time-homogeneous diffusion. We derive explicitly the long-term growth rates under a number of models for the reference asset, including the geometric Brownian motion model, GARCH model, inverse GARCH model,...
2 days ago
Quantitative Finance at arXiv wrote a new blog post titled A Model of Synchronization for Self-Organized Crowding Behavior. (arXiv:1612.01132v1 [q-fin.GN])
This paper proposes a general model for synchronized crowding behavior. An order parameter is introduced to quantify the level of synchronization which is shown a function of percentage of agents in reactive state. Further, synchronization is shown to be driven by the most active agents with the highest volatility. A tipping point is identified when crowd becomes self-amplifying and unstable. By applying this model, financial bubbles, market momentum and volatility patterns are simulated.
2 days ago
Quantitative Finance at arXiv wrote a new blog post titled A Multifaceted Panel Data Gravity Model Analysis of Peru's Foreign Trade. (arXiv:1612.01155v1 [q-fin.GN])
Peru's abundant natural resources and friendly trade policies has made the country a major economic player in both South America and the global community. Consequently, exports are playing an increasingly important role in Peru's national economy. Indeed, growing from 13.1% as of 1994, exports now contribute approximately 21% of the GDP of Peru as of 2015. Given Peru's growing global influence, the time is ripe for a thorough analysis of the most important factors governing its export performance. Thus, within the framework of the augmented gravity model of trade, this paper examines Peru's...
2 days ago
Quantitative Finance at arXiv wrote a new blog post titled Wavelet-based methods for high-frequency lead-lag analysis. (arXiv:1612.01232v1 [stat.ME])
We propose a novel framework to investigate lead-lag relationships between two financial assets. Our framework bridges a gap between continuous-time modeling based on Brownian motion and the existing wavelet methods for lead-lag analysis based on discrete-time models and enables us to analyze the multi-scale structure of lead-lag effects. We also present a statistical methodology for the scale-by-scale analysis of lead-lag effects in the proposed framework and develop an asymptotic theory applicable to a situation including stochastic volatilities and irregular sampling. Finally, we report...
2 days ago
Quantitative Finance at arXiv wrote a new blog post titled A Primer on Portfolio Choice with Small Transaction Costs. (arXiv:1612.01302v1 [q-fin.PM])
This survey is an introduction to asymptotic methods for portfolio-choice problems with small transaction costs. We outline how to derive the corresponding dynamic programming equations and simplify them in the small-cost limit. This allows to obtain explicit solutions in a wide range of settings, which we illustrate for a model with mean-reverting expected returns and proportional transaction costs. For even more complex models, we present a policy iteration scheme that allows to compute the solution numerically.
2 days ago
Quantitative Finance at arXiv wrote a new blog post titled A multi-asset investment and consumption problem with transaction costs. (arXiv:1612.01327v1 [q-fin.MF])
In this article we study a multi-asset version of the Merton investment and consumption problem with proportional transaction costs. In general it is difficult to make analytical progress towards a solution in such problems, but we specialise to a case where transaction costs are zero except for sales and purchases of a single asset which we call the illiquid asset. Assuming agents have CRRA utilities and asset prices follow exponential Brownian motions we show that the underlying HJB equation can be transformed into a boundary value problem for a first order differential equation....
2 days ago
Quantitative Finance at arXiv wrote a new blog post titled Predicting the rise of right-wing populism in response to unbalanced immigration. (arXiv:1612.00270v2 [physics.soc-ph] CROSS LISTED)
Among the central tenets of globalization is free migration of labor. Although much has been written about its benefits, little is known about the limitations of globalization, including how immigration affects the anti-globalist sentiment. Analyzing polls data, we find that over the last three years in a group of EU countries affected by the recent migrant crisis, the percentage of right-wing (RW) populist voters in a given country depends on the prevalence of immigrants in this country's population and the total immigration inflow into the entire EU. The latter is likely due to the...
2 days ago
The Reformed Broker wrote a new blog post titled The Riskalyze Report: Everyone ♥’s Stocks Again
At the request of so many investment advisors, my friends at Riskalyze share the big trends in the assets going into and coming out of advisor portfolios every week. The underlying data is aggregated from hundreds of thousands of client accounts across the $120 billion and counting that advisors manage on the Riskalyze platform*. I hope we......
2 days ago