The science that describes the management, creation and study of money, banking, credit, investments, assets and liabilities.

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25 views

Credit Risk and Concentration

I am working with a UK credit-union and we are looking to build a model to assess our credit risk and changes to this over time. We have a number of loans to borrowers who each have a credit rating ...
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2answers
37 views

How to stationarize profit and loss data with an increasing variance and large negative values for time series analysis?

PnL can take large negative values, and its variance increases over time as the firm grows. If we do differencing, an increasing variance remains. If we take log, negative values cannot be defined. ...
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1answer
42 views

Autoregressive distributed lag models ADL(p,q) determining amount of lags

I would like to know how I can determine the appropriate amount of lags in Matlab or another statistical package. I'm getting confused with VAR models and ARMAX models all the time and I'm a little ...
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3answers
166 views

Why it is good to take log on Finance data? Does it have nice properties? [duplicate]

Just like what I am asking in the title. I see nearly all the financial datas take logs before the data analysing step, Why? Dose it have nice properties?
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25 views

Monte Carlo simulation of investment account

I'm trying to estimate performance of an investment account over 20 years. The question is, have I set up the Monte Carlo simulation correctly? I've used Excel. I've assumed 8% average return and 13% ...
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16 views

Predicting whether a potential sale will be won or lost

I am currently working on a project using a sales system and trying to come up with a way to use the current pipeline of potential sales to predict the amount of product that will be sold in the ...
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34 views

How to convert daily variances to a monthly volatility and then annualize it?

I work out the conditional variance using a GARCH model based on daily returns as follows: ...
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21 views

Is there a statistical technique to perform this comparison? How could I do this on Stata?

I've been busy on a work where I have to compare two financial econometrics models on the determinants of financial leverage (panel data). These have only few control variables and the dependent ...
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1answer
33 views

Comparing salaries in different countries

I have a number of salary figures for roles that I want to compare across various countries. Obviously each country has their own currency and living costs. A simple way of comparing would be to use ...
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11 views

How to restore market making algorithm?

I need your advice to know how to restore certain market maker algorithm based on historical data. I have dataset with limit order book information at discrete time periods. For every time moment it ...
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1answer
31 views

Sum of weights in portfolio theory is not equal to 1

I'm trying to understand basic portfolio theory using R. As far as I understood, the sum of the weights of assets must be equal to 1 . But in this link, that teaches how to compute the efficient ...
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40 views

How do I deal with asynchronous data in financial time series?

I have tick by tick data of two financial time series. I am trying to do online regression between the given two time series. But I am stuck due to asynchronic nature of given financial time series ...
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27 views

Analysis of proportions over time

My knowledge of statistics is limited and I am looking for resources to read on the matter if possible. Anyways, I am currently trying to estimate a confidence interval for a proportion over time. ...
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21 views

expected shortfall and value-at-risk

I once read a R example of computing Value-at-Risk and expected shortfall as follows ...
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32 views

Finding criteria for a household financial budget falsification

I’m working on a financial problem about budget of households. Households in a state fill a form about their net budget in every year and our insurance company investigate their financial status and ...
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1answer
89 views

Financial exposures modelling with graph theory tools

I was wondering how finance folks go about storing and modelling portfolio exposure relationships with the aim to later aggregate or slice & dice the exposures by different factor sets. For ...
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16 views

NEGM Implementation in R

I am applying some chaos tests in financial time series in R and I am interested to run a NEGM (Nychka, Ellner, Gallant, McAffrey) Test for a largest Lyapunov exponent based on Jacobian methods. Do ...
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18 views

Comparing density plots and scoring the combination

I have a set of density plots that contain the distribution of stock prices. Each graph has 5 density plots as follows that shows the distribution of monthly returns based on their ratings - ...
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0answers
33 views

Inflation as an independent variable

Assume a model like this, basically explaining stock market returns with a bunch of stuff: ...
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3answers
106 views

Dealing with different time series data in Machine Learning

I am trying to create a stock market model based on fundamental variables for the US economy. I am using R. Some of the variables I am looking to include are: GDP, Unemployment Rate, Initial Claims, ...
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2answers
106 views

which model should I use in order to represent stock market price from theoretical perspective?

I am studying my lecture notes where I saw this: $Y_t=Y_{t-1} +u_t$ $Y_t=0.5* Y_{t-1} +u_t$ $y_t=0.8* u_{t-1}+u_t$ The first two models are AR(1) and the third one is an MA(1) model. In the ...
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1answer
51 views

High Ljung-Box p-values at large lags

I am trying fit an ARIMA model to stock returns. I have reached a decent model using the AIC criterion. However, the ljung-box p value under a diagnostic plots are pretty weird. The null ...
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53 views

Censored data prediction

I am working with the survivorship bias free database of hedge funds and trying to estimate the persistence of performance in the future performance of such funds based on the past performance. In ...
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1answer
38 views

Financial Random Walks

Does anyone know of any good and accessible papers on the random walk modelling of financial data from a statistics perspective? Most of the papers I've found have been written by economists or ...
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1answer
30 views

What is a mixing process?

What does this mean? Asset prices follow a mixture of normal distributions with a mixing process dependent on the unobservable information arrival process.
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37 views

Small Sample Size in Kernel Density Estimation

I am working on a problem where I have to solve an optimization problem over a dataset of 6 variables (~300 data points per variable). The data set is a historical data set, unfortunately it is small ...
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74 views

Panel data model for exports and exchange rates

Suppose I have 4 years worth of monthly panel data on: exports of widgets $y$ from home country to 12 different nations (in US dollars) nominal exchange rates $x$ for those 12 countries (in US ...
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31 views

Derivation of Zhou (1996) volatility estimator

Does anyone know how to derive the Variance of Bin Zhou's volatility estimator (Theorem 1) in 'High-Frequency Data and Volatility in Foreign-Exchange Rates' (1996)? PDF Link attached. Any help would ...
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70 views

Maximizing returns - A Bayesian approach

I want to design a Bayesian model for a simple asset allocation problem. Say I can buy $a_i$ amounts of $N$ assets. The return values of these assets are given by random variables $r_i$ with known ...
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1answer
129 views

Inverse CDF of normal variable

The following paragraph was an excerpt from R PerformanceAnalytics documentation on VaR. The most common estimate is a normal (or Gaussian) distribution $R\sim \mathcal{N}(\mu,\sigma)$ for the ...
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1answer
118 views

Forecasting asset returns using index models in R

How do you forecast returns and the associated risk in R using index models? How do you represent risk in multi index models as a single value in R?
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1answer
108 views

Given this time series, what statistical methods would be used for description and forecasting?

These static cumulative default rate tables and charts come from this public report published by a credit rating agency. Basically, you take all the loans originated in a period of time (a ...
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1answer
83 views

How to sum correlations, or, calculate correlation of disjointed variables

I'm trying to calculate the correlation of two variables, but the array is disjointed in the middle - but I'm trying to obtain one correlation coefficient. See the excel file I uploaded. Because ...
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28 views

Bootstrap confidence interval for a minimization problem

Based on a simulated empirical distribution of $Z$, find $\mu^*_X$, the smallest $\mu_X$ such that $P(Z > c) = p$, where $Z$ is given by $Z = \prod^5_{i=1}(aX_i + bY_i)$ where the $X_i$'s are i.i.d ...
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72 views

Estimating a VAR model with variable coefficients

I want to estimate a VAR model based on the Dufour and Engle paper "Time and the Price Impact of a Trade" (2000). There, the parameter $ b_{i} $ of the endogenous variable $ x_{i} $ is dependent on ...
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1answer
76 views

Detecting outlier cash movements

If I'm watching a series of accounts for transactions going in and transactions going out, I want to notice unusually large or transactions for any particular account on any particular day. So if ...
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358 views

Rolling quarters and four-quarters ended

I'm working on a financial project that in the past calculated its number quarterly. It would then also have a 4-quarters ended calculation as well. However, now we need to run the calculations on a ...
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3answers
785 views

Does applying ARMA-GARCH require stationarity?

I am going to use the ARMA-GARCH model for financial time series and was wondering whether the series should be stationary before applying the said model. I know to apply ARMA model the series should ...
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1answer
115 views

Raw return vs. percentage return to calculate volatility

I am using squared return as a proxy to calculate volatility, however i'm not sure whether to use raw return or percentage return. Under raw return all return estimates are below 1, however under ...
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1answer
107 views

A choice between two books

Can anyone please advise which of the following books I should read: Statistics and Data Analysis by Rupert Analysis of financial time series by Tsay. I am interested in applying the theory and ...
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1answer
110 views

Probability Questions

I've got a 2 advanced probability questions that I'm having trouble with so just asking to confirm an answer/method A computer company provides an insurance policy for one of its systems. If the ...
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2answers
312 views

Linear regression with fat-tailed errors

I'm testing a linear model that explains stock returns with some contemporaneous factors; the model is assumed to satisfy OLS assumptions except that the errors (i.e., unexplained stock returns) have ...
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0answers
20 views

Can I run a regression where dependents are coefficients from other regression and independents are R squared from these regressions?

I calculate Beta risk for multiple assets by running multiple regressions: Return = intercept + Beta*Market_Return Then I want to compare the Betas. I run other regression where Beta is dependent ...
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2answers
120 views

The correct probability distribution / way to identify large deviations in a set of daily changes to portfolio value

I am working on a report which is being sent through to end users that should flag to them any "large changes" in the day-to-day values for the past 30 days. These values are day-to-day differences ...
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1answer
1k views

Variance of annual return based on variance of monthly return

I'm trying to understand the whole variance/std error thing of a time series of financial returns, and I think I'm stuck. I have a series of monthly stock return data (let's call it $X$), which has ...
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1answer
63 views

What is a suitable probability distribution for monetary amounts?

In my Bayesian model, I have a random variable representing the amount of money received due to a user's click on an affiliate link on a website. There are several such links with different payouts; ...
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1answer
51 views

How to change financial year data into calendar year data

I have several variables, some calculated from 1 July to 30 June and the remainder calculated from 1 January to 31 December. Now how I can change one of them into financial or calendar year?
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1answer
104 views

Confused about independence and prediction power of data

What is the correct way (if there is one) to think about when authors claim that stocks have produced some percentage annual return X over every 20 year period of time? They might calculate this by ...
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100 views

Percentage change vs. first difference

I want to regress (using an OLS regression) survey results on stock returns. How do I decide whether I use the first difference or the percentage change of the survey results?
3
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1answer
1k views

First steps learning to predict financial timeseries using machine learning

I am trying to get a grasp on how to use machine learning to predict financial timeseries 1 or more steps into the future. I have a financial timeseries with some descriptive data and I would like to ...