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Quantitative Finance Code Collector's Blog

A Constant-Volatility Framework for Managing Tail Risk

January 31, 2013 Comments (0)

A paper published in the Journal of Portfolio Management, 2013, Vol. 39, No. 2: pp. 28-40, by Alexandre Hocquard, Sunny Ng, and Nicolas Papageorgiou. QuotationSince Lehman Brothers collapsed in 2008, tail-risk hedging has become an increasingly important concern for investors. Traditional approaches, such as purchasing options or variance swaps as insurance, are often expensive, illiquid, and result in a substantial drag on performance. A more prudent, cost-effective way to maintain a constant...

Worst-Case Value at Risk of Nonlinear Portfolios

January 21, 2013 Comments (0)

A paper published in Management Science written by Zymler, S., Kuhn, D., and Rustem, B. Nice & Practical.QuotationPortfolio optimization problems involving value at risk (VaR) are often computationally intractable and require complete information about the return distribution of the portfolio constituents, which is rarely available in practice. These difficulties are compounded when the portfolio contains derivatives. We develop two tractable conservative approximations for the VaR of a...

Fourth Set: Basel III counterparty credit risk - Frequently asked questions

December 28, 2012 Comments (0)

The Basel Committee on Banking Supervision has received a number of interpretation questions related to the December 2010 publication of the Basel III regulatory frameworks for capital and liquidity and the 13 January 2011 press release on the loss absorbency of capital at the point of non-viability.Below are three sets of frequently asked questions (FAQs) that relate to counterparty credit risk, including the default counterparty credit risk charge, the credit valuation adjustment (CVA)...

How to Combine Long and Short Return Histories Efficiently

December 19, 2012 Comments (0)

Missing data imputation is a common technique many researchers have to apply for some certain situations, especially when we do some portfolio analysis that requires an equal length of historical returns of assets in the portfolio. Typically we assume a distribution of the underlying data and simulate missing data based on the assumption, MLE or EM algorithm is used for simulation. For example, a great R package I have introduced for missing data imputation was at here."How to Combine Long and...

A CRO guide to deal with financial amnesia

December 12, 2012 Comments (0)

A guest post from Anton Kwaijtaal: A CRO guide to deal with financial amnesia.1. Don’t fear the risk of falling behindWhether it is the risk of falling behind, peer group pressure or ill-defined incentive schemes, there exists a tendency to choose direction based on the illusion of control when there is actually too much uncertainty. Instead, questions should be asked as to whether decisions based on more or less unfounded assumptions should be made at all. Unfounded and inappropriate...

Thanksgiving 2012: A Famous Temple in China

November 22, 2012 Comments (0)

Time flies, another thanksgiving day of a year.I would like to express utmost thanks to my supervisor, Professor David Newton, for his continued encouragement, support and guidance throughout the course of my PhD research. I am grateful for his patience, interest and willingness to accept my PhD research topics. Not only does he provide me with research guidance but also his advice for my career drives the whole course of research and makes the three-year PhD study in Nottingham much more...

Basel III counterparty credit risk - Frequently asked questions

November 21, 2012 Comments (0)

The Basel Committee on Banking Supervision has received a number of interpretation questions related to the December 2010 publication of the Basel III regulatory frameworks for capital and liquidity and the 13 January 2011 press release on the loss absorbency of capital at the point of non-viability.Below are three sets of frequently asked questions (FAQs) that relate to counterparty credit risk, including the default counterparty credit risk charge, the credit valuation adjustment (CVA)...

Run My Code Portal Introduction

November 9, 2012 Comments (0)

Do not know whether you visited it before or not, I came across this site "Run My Code" today when I searched a paper. It is interesting and useful so I have no hesitation to share with you immediately.Basically RunMyCode is a novel cloud-based platform that enables scientists to openly share the code and data that underlie their research publications. It has many files accompanying those published papers so you can easily replicate the results, which dramatically decreases your research...

A Fully Integrated Liquidity and Market Risk Model

October 29, 2012 Comments (0)

An excellent and practical paper by Attilio Meucci, "A Fully Integrated Liquidity and Market Risk Model" forthcoming in Financial Analysts Journal.QuotationGoing beyond the simple bid–ask spread overlay for a particular Value at Risk, the author introduces an innovative framework that integrates liquidity risk, funding risk, and market risk. He overlaid a whole distribution of liquidity uncertainty on future market risk scenarios and allowed the liquidity uncertainty to vary from one scenario...

A Stochastic Volatility Model with Random Level Shifts and its Applications to SP 500 and NASDAQ Return Indices

October 10, 2012 Comments (0)

A paper forthcoming in The Econometrics Journal by Qu and Perron, worth to read carefully.QuotationThis paper proposes a framework for the modeling, inference and forecasting of volatility in the presence of level shifts of unknown timing, magnitude and frequency. First, we consider a stochastic volatility model comprising both a level shift and a short-memory component, with the former modeled as a compound binomial process and the latter as an AR(1). Next, we adopt a Bayesian approach for...