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Another Banner Year for Hindsight Capital

November 29, 2015 by The Reformed Broker   Comments (0)

Lucking into the nine best holdings in a universe of thousands of stocks only seems possible with the benefit of hindsight....

On the Existence of Martingale Measures in Jump Diffusion Market Models. (arXiv:1511.08349v1 [q-fin.MF])

November 29, 2015 by Quantitative Finance at arXiv   Comments (0)

In the context of jump-diffusion market models we construct examples that
satisfy the weaker no-arbitrage condition of NA1 (NUPBR), but not NFLVR. We
show that in these examples the only candidate for the density process of an
equivalent local martingale measure is a supermartingale that is not a
martingale, not even a local martingale. This candidate is given by the
supermartingale deflator resulting from the inverse of the discounted growth
optimal portfolio. In particular, we con- sider an...

On Game-Theoretic Risk Management (Part Two) - Algorithms to Compute Nash-Equilibria in Games with Distributions as Payoffs. (arXiv:1511.08591v1 [q-fin.EC])

November 29, 2015 by Quantitative Finance at arXiv   Comments (0)

The game-theoretic risk management framework put forth in the precursor work
"Towards a Theory of Games with Payoffs that are Probability-Distributions"
(arXiv:1506.07368 [q-fin.EC]) is herein extended by algorithmic details on how
to compute equilibria in games where the payoffs are probability distributions.
Our approach is "data driven" in the sense that we assume empirical data
(measurements, simulation, etc.) to be available that can be compiled into
distribution models, which are suitable...

Complex economies have a lateral escape from the poverty trap. (arXiv:1511.08622v1 [q-fin.EC])

November 29, 2015 by Quantitative Finance at arXiv   Comments (0)

We analyze the decisive role played by the complexity of economic systems at
the onset of the industrialization process of countries over the past 50 years.
Our analysis of the input growth dynamics, based on a recently introduced
measure of economic complexity, reveals that more differentiated and more
complex economies face a lower barrier (in terms of GDP per capita) when
starting the transition towards industrialization. Moreover, adding the
complexity dimension to the industrialization...

Approximate Option Pricing in the L\'evy Libor Model. (arXiv:1511.08466v1 [q-fin.PR])

November 29, 2015 by Quantitative Finance at arXiv   Comments (0)

In this paper we consider the pricing of options on interest rates such as
caplets and swaptions in the L\'evy Libor model developed by Eberlein and
\"Ozkan (2005). This model is an extension to L\'evy driving processes of the
classical log-normal Libor market model (LMM) driven by a Brownian motion.
Option pricing is significantly less tractable in this model than in the LMM
due to the appearance of stochastic terms in the jump part of the driving
process when performing the measure changes...

Optimal Real-Time Bidding Strategies. (arXiv:1511.08409v1 [math.OC])

November 29, 2015 by Quantitative Finance at arXiv   Comments (0)

The ad-trading desks of media-buying agencies are increasingly relying on
complex algorithms for purchasing advertising inventory. In particular,
Real-Time Bidding (RTB) algorithms respond to many auctions -- usually Vickrey
auctions -- throughout the day for buying ad-inventory with the aim of
maximizing one or several key performance indicators (KPI). The optimization
problems faced by companies building bidding strategies are new and interesting
for the community of applied mathematicians....

Singular Problems for Integro-Differential Equations in Dynamic Insurance Models. (arXiv:1511.08666v1 [q-fin.RM])

November 29, 2015 by Quantitative Finance at arXiv   Comments (0)

A second order linear integro-differential equation with Volterra integral
operator and strong singularities at the endpoints (zero and infinity) is
considered. Under limit conditions at the singular points, and some natural
assumptions, the problem is a singular initial problem with limit normalizing
conditions at infinity. An existence and uniqueness theorem is proved and
asymptotic representations of the solution are given. A numerical algorithm for
evaluating the solution is proposed,...

Water Stress on U.S. Power Production at Decadal Time Horizons. (arXiv:1511.08449v1 [q-fin.EC])

November 29, 2015 by Quantitative Finance at arXiv   Comments (0)

Thermoelectric power production at risk, owing to current and projected water
scarcity and rising stream temperatures, is assessed for the contiguous United
States at decadal scales. Regional water scarcity is driven by climate
variability and change, as well as by multi-sector water demand. While a
planning horizon of zero to about thirty years is occasionally prescribed by
stakeholders, the challenges to risk assessment at these scales include the
difficulty in delineating decadal climate...

Full and fast calibration of the Heston stochastic volatility model. (arXiv:1511.08718v1 [q-fin.CP])

November 29, 2015 by Quantitative Finance at arXiv   Comments (0)

This paper presents an algorithm for a complete and efficient calibration of
the Heston stochastic volatility model. We express the calibration as a
nonlinear least squares problem; exploiting a suitable expression of the
characteristic function, we give the analytical gradient of the price of a
vanilla option with respect to the model parameters, which is the key element
of all variants of the objective function. The interdependency between the
components of the gradient enables an efficient...

Post 2800, or, 8+ Years at The Aleph Blog

November 29, 2015 by The Aleph Blog   Comments (0)

Photo Credit: Mary Merkel || I am busy all of the timeEvery 100 posts or so, every year or so, I take a small break from covering the markets to give a few thoughts of mine that are less related to the markets.  I have not done that recently.  I skipped doing post 2700, and also a post for my eighth blogoversary.  I also slowed down my posting generally.  Today I would like to explain why that was so.I carry a lot of responsibility outside of my business, family, and writing.  The last two...