Social Markets Hypothesis
This social adoption process suggests an amendment to the Efficient Markets Hypothesis (EMH), which maintains that investors are rational and information is fully reflected in prices. Given that human beings …
Simulating the Synchronizing Behavior of High-Frequency Trading in Multiple Markets
Benjamin Myers and Austin Gerig Abstract Nearly one-half of all trades in financial markets are executed by high-speed autonomous computer programs—a type of trading often called high- frequency trading (HFT). …
Transformation to a Portfolio Model
The proposed stress-testing model could be easily transformed into a portfolio model (the model dedicated to the estimation of unexpected losses). In the case of a portfolio model, a macro-forecast …
Correlation Dimension Approach to Research
Unfortunately, there exists no statistical test that has chaos as a hypothesis, nor a characteristic property separating chaos from stochastic process. The basic method for identification is the algorithm by …
Modeling of Ratings and the Probability of Default Forecast Models
A lot of research is devoted to the difference in the ratings of the main international CRAs. They provide adjustments of explanatory financial and macroeconomic variables on the new horizon …
Outlier Dashboards
Below is a mock dashboard report, which ranks stress themes by surprise (i. e., outlier move as measured in standard deviation). Useful reports will have drill down capability, and the …
Modeling Demand for Mortgage Loans Using Loan-Level Data
Evgeniy Ozhegov Abstract This paper is concerned with modeling the demand for mortgage loans. The demand for loans can be represented as two functions: probability of borrowing and the loan …
Analysis and Backtesting
The backtesting of simulated return and price time-series shows that our approach is able to reproduce some stylized facts (Andersen and Davis 2009). There is an autocorrelation in the absolute …
Brief Review of Financial Time-Series Models
As discussed above, the naive random walk model is too simple to describe the complexity of price dynamics. The fractional Brownian motion (Mandelbrot and Van Ness 1968), which is the …
Levels of Development
Both individual and collective learning progresses through sequential stages of development (or Levels, in AQAL terminology). In simplified terms, you could represent three sequential stages of development. 1. Intuitive risk …
Scenario Generation Based on 22-Year Cycle
Based on the 22 (more exactly, 21.8)-year cycle of geomagnetic activity, one can develop a scenario of the periods of increasing and decreasing risks, e. g., for risks of industrial …
Price-Volume Relationship
The price-volume relationship is one of the most studied in the field of finance when studying price dynamics. One of the oldest models used to study price-volume relationship is the …
Outliers as Early Warning Signals
Outliers play a crucial role in early warning. Outliers are the first visible signal of a regime shift into abnormal markets as Early Adopters act on disruptive information. HSBC’s February …
Model
The model simulates the continuous double auction, a market structure common to most modern exchanges. Traders submit bids and offers to buy and sell respectively at the best price they …
Scheinkman and LeBaron Test for Predictability
Another interesting use of correlation integral was presented by Scheinkman and Lebaron (1989). As before, Cm(e) stands for the correlation integral for M as a phase dimension of reconstructed space, …
Models and Data for Bank Ratings
Here, and further in this section, ordered probit/logit econometric models were used to forecast rating grades (for example, see Peresetsky and Karminsky (2011)). Numeric scales for ratings were also used …
Introducing StressGrades™
Outlier based early warning is especially useful when considering the many scenarios risk managers shock their positions with. A risk manager at a global bank explained that they run close …
Introduction and Literature Review
Demand for loans in general, and for mortgage loans in particular, is the function of the probability of a credit contract agreement and of credit contract terms based on characteristics …
Mathematical Models of Price Impact and Optimal Portfolio Management in Illiquid Markets
Nikolay Andreev Abstract The problem of optimal portfolio liquidation under transaction costs has been widely researched recently, producing several approaches to problem formulation and solving. Obtained results can be used …
Contemporary Price Impact Modeling
The ideal frictionless market of Merton (1969) does not adequately simulate the more complex real market. First of all, price dynamics obviously depend on an agent’s actions in the market; …
Publishing Switzerland 2015
This work is subject to copyright. All rights are reserved by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse …
Overview of Contemporary Portfolio Management Models and Their Evolution
Davis and Norman (1990) introduced a consumption-investment problem for a CRRA agent with proportional transaction costs and obtained a closed-form solution for it. Another advantage of the model was allowing …
