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Quantitative Finance Code Collector's Blog

Assessing the Performance of Different Volatility Estimators: A Monte Carlo Analysis

September 29, 2012 Comments (0)

A great paper by Cartea, Álvaro and Karyampas, Dimitrios, published in Applied Mathematical Finance, Volume 19, Number 6, 1 December 2012 , pp. 535-552(18).QuotationWe test the performance of different volatility estimators that have recently been proposed in the literature and have been designed to deal with problems arising when ultra high-frequency data are employed: microstructure noise and price discontinuities. Our goal is to provide an extensive simulation analysis for different levels...

CVA and Wrong-Way Risk

August 20, 2012 Comments (0)

CVA (credit value adjustment) is a hot topic, thanks to the financial crisis.  It is the difference between the risk-free portfolio value and the true portfolio value that takes into account the possibility of a counterparty’s default. In other words, CVA is the market value of counterparty credit risk. Check Wikipedia for its detail definition.A paper "CVA and Wrong-Way Risk" by John Hull and Alan White published in the Financial Analysts Journal uses Monte Carlo simulation to...

Liquidity and Asset Prices

August 17, 2012 Comments (0)

An excellent review book on liquidity and asset prices by three experts Yakov Amihud, Haim Mendelson, and Lasse Heje Pedersen. A good bed reading one.QuotationWe review the theories on how liquidity affects the required returns of capital assets and the empirical studies that test these theories. The theory predicts that both the level of liquidity and liquidity risk are priced, and empirical studies find the effects of liquidity on asset prices to be statistically significant and economically...

A Market-Based Measure of Credit Portfolio Quality and Banks Performance During the Subprime Crisis

August 16, 2012 Comments (0)

A very nice paper by Knaup and Wagner (2012) published in Management Science. Enjoy it.QuotationWe propose a new method for measuring the quality of banks' credit portfolios. This method makes use of information embedded in bank share prices by exploiting differences in their sensitivity to credit default swap spreads of borrowers of varying quality. The method allows us to derive a credit risk indicator (CRI). This indicator represents the perceived share of high-risk exposures in a bank's...

Basics of Using Bloomberg

August 15, 2012 Comments (0)

Investors across the globe aspire to use the Bloomberg terminal which certainly gives a deep insight to almost everything from the world of investments. The guide which follows provides you with all possible information on the Bloomberg Terminal. The guide provides an overview of the following topics:•  Starting and Installing the terminal•  Navigating through the options•  Checking out Tickers•  Accessing the Help Options•  Sending...

On Geometric and Arithmetic Approaches to Attribution Linking

August 13, 2012 Comments (0)

On Geometric and Arithmetic Approaches to Attribution Linking: MATLAB Code: The new Arithmetic Linking Algorithm effectively “patches the existing holes” in other methods. Unlike the standard and modified Frongello Algorithms, the new method is independent of the month order. Compared to Carino and Menchero, this is a linear and non-smoothing construction. The new algorithm is simple, easy to use, and hence more appropriate for practitioners without advanced training in mathematics. It should...

Non-stationary non-parametric volatility model

July 31, 2012 Comments (0)

A nice paper written by Han and Zhang (2012) in The Econometrics Journal.QuotationWe investigate a new non-stationary non-parametric volatility model, in which the conditional variance of time series is modelled as a non-parametric function of an integrated or near-integrated covariate. Importantly, the model can generate the long memory property in volatility and allow the unconditional variance of time series to be time-varying. These properties cannot be derived from most existing...

R Optimization Test

July 23, 2012 Comments (0)

I have tested several R optimization functions before: nlm, optim(Nelder-Mead), optim(BFGS), optim(SANN), nlminb, optim (L-BFGS-B) for a eight-parameter Vasicek interest rate model, overall I find that for my setting, nlminb is the best and all R functions finish within seconds. For detail please read the old post at R optimization function testPat at Portfolio Probe recently had a wonderful test on some heuristic optimization methods, including simulated annealing, traditional genetic...

An Implementation of Markov Regime Switching Model with Time Varying Transition Probabilities in Matlab

June 27, 2012 Comments (0)

This memo explains how to use the MATLAB code for estimating a Markov Regime Switching Model with time varying transition probabilities. The code is developed by Zhuanxin Ding based on the original code by Marcelo Perlin for estimating a MarkovRegime Switching Model with constant transition probability matrix.Click here for an introduction paper and Matlab codes are here.Tags - markov , matlab , regimeRead the full post at An Implementation of Markov Regime Switching Model with Time Varying...

Workshop on Stochastic and PDE Methods in Financial Mathematics, 2012, Armenia

June 13, 2012 Comments (0)

I am contacted by a reader to post this announcement, just in case you are interested, some good speakers.Institute of Mathematics of the National Academy of Sciences in association with Yerevan State University and American University of Armenia is organizing a Workshop on Stochastic and PDE Methods in Financial Mathematics in September 7 - 12, 2012 to be held in Yerevan, Armenia.The program of the workshop will consist of invited 50 minutes plenary lectures and contributed 20 minutes talks,...