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

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How to get the expected shortfall? [on hold]

Suppose X ~ Uniform(−1, 1), Find the Expected Shortfall of X at level 0.02 [ES(X) at level 0.02] I found the VaR(X) at level 0.02 to be -0.96. I am not very sure how find ES(X) at level 0.02. ...
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2 views

Comparing two samples of volatility data: Some complication

I'm having some problems establishing the best possible test for a comparison of two samples. Background: I'm investigating the volatility in returns of Exchange Traded Funds which trade ...
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6 views

Solving for polynomial roots in STATA [migrated]

I am trying to solve for the roots of a function in STATA. There is the "polyeval" command under MATA, but I am not sure how to apply it here. It seems to me as if under polyeval functions must follow ...
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15 views

What is Tau and Omega in the Black Litterman model?

I'm looking into the BL model when it comes to portfolio optimization, and I'm having a hard time trying to understand each one. I've read on several papers that Omega is the covariance matrix, but I ...
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20 views

Distribution of daily log returns in Black-Scholes

We re in the Black-Scholes framework. So $(S_t)_{t \geq 0}, t \in \mathbb{N}$ (underlying) is a stochastic process on $(\Omega,\mathcal{F},\mathbb{P})$ with the filtration $(\mathcal{F}_{t})_{t \geq ...
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1answer
22 views

Standard Deviation in Transformation vs annualizing monthly returns?

I'm very confused about this difference, and I wanted to know the reason behind it (If this is very rudimentary, I'm sorry but I can't seem to wrap my head around it). If you were to transform a data ...
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1answer
48 views

Comparison of Two Time Series (Strategies) - Are they different?

Apologies for my naivety if the answer to the question is simple, stats is an area I am not comfortable in and am looking to improve. My problem is within the frame of finance. Simply put, say I ...
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1answer
57 views

Mortgage loan predictive analysis

I have hundreds of thousands of mortgage loan historic records that look like these 2 examples: ...
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1answer
114 views

use ARIMA models to predict stock prices

Are there any books or compilation of research papers that discuss application of ARIMA models to forecast prices in financial markets I.e stocks,commodities,futures,options etc. I found this one but ...
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1answer
66 views

Applying the Bayesian Information Criterion for Stepwise Selection Algorithms on Time Series

The title sounds rather complicated for fairly simple statistics issue. I've created a factor model that tests adding additional factors by checking if the improvement in the mean squared error ...
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2answers
233 views

The econometrics of a Bayesian approach to event study methodology

Event studies are widespread in economics and finance to determine the effect of an event on a stock price, but they are almost always based on frequentist reasoning. An OLS regression -- over a ...
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33 views

Log returns and ARMA-GARCH models

I try to model currency rates volatility using GARCH models through the RUGARCH package in R. Starting from the observed currency rate series, I compute the log-return through: ...
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2answers
443 views

Difference between geometric and arithmetic mean

I still have problems to exactly understand the difference between geometric and arithmetic mean. I know that e.g. for returns, the arithmetic mean can be wrong (e.g. if I start with 100 $ and if my ...
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1answer
211 views

Why stock prices are lognormal but stock returns are normal

Except for the fact that returns can be -ve while prices must be +ve, is there any other reason behind modelling stock prices as a log normal distribution but modelling stock returns as a normal ...
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21 views

How could I calculate value at risk by simulation from garch model?

I need to calculate value at risk for return of mutual fund by using simulation monte carlo for model garch ...my data have 139 observations and its not normally distribution ...what are the steps to ...
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0answers
10 views

Cumulative returns when client loses nearly everything

I'm trying to calculate the cumulative return of a client over a period. During that period the client may choose to make deposits. This is where I am getting stuck. I am using the Modified Dietz ...
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6 views

Optimal intertemporal allocation of bets based on estimated returns

Each day, an investor predicts the day's stock-market return in the morning, generating a point estimate and prediction interval, and chooses to bet an amount $B_t$ on the market that day based on her ...
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31 views

what is a dummy variable on henriksson-merton model for market timing ability?

i am a little confuse about calculating the dummy variable on Henriksson-Herton model for market timing ability,, some researches used 1 if the excess return for market is negative but other ...
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1answer
14 views

How to assign a value to an item with no fixed price that is sold alone or in combination?

Let's say we have a set of items with no fixed price, and a set of transactions in which these items are sold alone or in combination. How do I go about assigning a value to each of these items? ...
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38 views

Clustering methods for decision trees

My thesis work examines e-commerce data that is clustered using a decision tree, but I am uncertain about where to start. What algorithm or methods does one use to do this?
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2answers
69 views

What is the purpose of Leads and Lags in a time series?

I will analyse stock prices and i don't understand the purpose of leading and lagging. can you please suggest me some preliminary analysis on the stock prices also, this will help me for my thesis.. ...
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16 views

How can I validate if a pattern is meaningful?

I am a financial analyst for a construction company. My goal is to develop an accurate sales model that is correctly reflects prior sales history (back testing) so I can then predict future sales. I ...
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27 views

Unknown formula [closed]

I came across a formula presented in a financial context, and have been trying unsuccessfully to try a work out what it means. $SL = 2 * 100 * \sqrt{V_L + (\alpha + \beta)^k \sigma^2_{n - V_L}}$. I ...
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35 views

Predicting stock returns - in a panel data specification or by using portfolio formation strategies?

I'm working on an empirical analysis where I try to predict stock returns using weekly data. Ideally, I would like to use a panel data model like the following: $$ ...
3
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1answer
47 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
97 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
179 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
208 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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42 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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50 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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103 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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27 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
54 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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15 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
68 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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62 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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0answers
34 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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0answers
57 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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61 views

Can PCA work when the number of observations is smaller than the number of dimensions? [duplicate]

I understand how principal component analysis works. However, in a financial time series sense, I do not understand why the number of observations should be larger than the number of dimensions. I am ...
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34 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 ...
3
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1answer
228 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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18 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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20 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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36 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
145 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
149 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
110 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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0answers
62 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
40 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
32 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.