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Algorithmic Finance's Blog

Efficient greek estimation in generic swap-rate market models

May 30, 2012 Comments (0)

We first develop an efficient algorithm to compute Deltas of interest rate derivatives for a number of standard market models. The computational complexity of the algorithms is shown to be proportional to the number of rates times the number of factors per step. We then show how to extend the method to efficiently compute Vegas in those market models. Content Type Journal ArticlePages 17-33DOI 10.3233/AF-2011-002Authors Mark Joshi, Chao Yang, Journal Algorithmic FinanceOnline ISSN...

Forecasting prices from level-I quotes in the presence of hidden liquidity

May 30, 2012 Comments (0)

Bid and ask sizes at the top of the order book provide information on short-term price moves. Drawing from classical descriptions of the order book in terms of queues and order-arrival rates (Smith et al., 2003), we consider a diffusion model for the evolution of the best bid/ask queues. We compute the probability that the next price move is upward, conditional on the best bid/ask sizes, the hidden liquidity in the market and the correlation between changes in the bid/ask sizes. The model can...

Behavioral biases and investor performance

May 30, 2012 Comments (0)

Research indicates that individual investors trade excessively and underperform the market indices, Barber and Odean (2000). The purpose of this paper is to help explain which behavioral biases, if any, can explain this result using a simulation approach. Results indicate that putting too much weight on the current environment, anchoring, is the largest factor in explaining individual investor underperformance. In addition, loss aversion is the largest factor to explain excessive trading. When...

Markets are efficient if and only if P = NP

May 30, 2012 Comments (0)

I prove that if markets are efficient, meaning current prices fully reflect all information available in past prices, then P = NP, meaning every computational problem whose solution can be verified in polynomial time can also be solved in polynomial time. I also prove the converse by showing how we can “program” the market to solve NP-complete problems. Since P probably does not equal NP, markets are probably not efficient. Specifically, markets become increasingly inefficient as the time...

Binomial options pricing has no closed-form solution

May 30, 2012 Comments (0)

We set a lower bound on the complexity of options pricing formulae in the lattice metric by proving that no general explicit or closed form (hypergeometric) expression for pricing vanilla European call and put options exists when employing the binomial lattice approach. Our proof follows from Gosper's algorithm. Content Type Journal ArticlePages 13-16DOI 10.3233/AF-2011-003Authors Evangelos Georgiadis, Journal Algorithmic FinanceOnline ISSN 2157-6203Print ISSN 2158-5571 Journal...

Tweets and peers: defining industry groups and strategic peers based on investor perceptions of stocks on Twitter

May 30, 2012 Comments (0)

Delineating industry groups of related firms and identifying strategic peers is important for both financial practitioners and scholars. Our study explores whether the degree to which pairs of companies are associated with each other in an online stock forum is related to the comovement of their stocks. We find that our news-based measure of relatedness can explain stock returns with the same power as the established SIC classification scheme. We investigate, whether our method can serve to...

A Minute with Emanuel Derman

May 30, 2012 Comments (0)

A Minute with Emanuel Derman Content Type Journal ArticlePages 77-77DOI 10.3233/AF-2011-001Authors Journal Algorithmic FinanceOnline ISSN 2157-6203Print ISSN 2158-5571 Journal Volume Volume 1 Journal Issue Volume 1, Number 1 / 2011

AlgoFinance: Inaugural issue of Algorithmic Finance is now online! http://t.co/19tK18HC

January 12, 2012 Comments (0)

AlgoFinance: Inaugural issue of Algorithmic Finance is now online! http://t.co/19tK18HC

AlgoFinance: Algorithmic Finance will now be published by IOS Press.

August 4, 2011 Comments (0)

AlgoFinance: Algorithmic Finance will now be published by IOS Press.

AlgoFinance: Ongoing call for papers for future issues, bridging computer science and finance.

August 4, 2011 Comments (0)

AlgoFinance: Ongoing call for papers for future issues, bridging computer science and finance.