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The Aleph Blog wrote a new blog post titled How to Invest Carefully for Mom
Photo Credit: stewit========Just a note before I begin. My piece called “Where Money Goes to Die” was an abnormal piece for me, and it received abnormal attention.  The responses came in many languages aside from English, including Spanish, Turkish and Russian.  It was interesting to note the level of distortion of my positions among those writing articles.  That was less true of writing responses here.My main point is this: if something either has no value or can’t be valued, it can’t be an investment.  Speculations that have strong upward price momentum, like penny...
just now
Quantitative Finance at arXiv wrote a new blog post titled Dead Alphas as Risk Factors. (arXiv:1709.06641v1 [q-fin.PM])
We give an explicit algorithm and source code for extracting equity risk factors from dead (a.k.a. "flatlined" or "hockey-stick") alphas and using them to improve performance characteristics of good (tradable) alphas. In a nutshell, we use dead alphas to extract directions in the space of stock returns along which there is no money to be made (and/or those bets are too volatile). In practice the number of dead alphas can be large compared with the number of underlying stocks and care is required in identifying the aforesaid directions.
6 hours ago
Quantitative Finance at arXiv wrote a new blog post titled Market Dynamics. On A Muse Of Cash Flow And Liquidity Deficit. (arXiv:1709.06759v1 [q-fin.TR])
The first attempt to obtain market directional information from non--stationary solution of the dynamic equation[1] "future price tend to the value maximizing the number of shares traded per unit time" is presented. We demonstrate that price impact concept is poorly applicable to market dynamics and execution flow $I=dV/dt$ operator with an "impact from the future" term, providing information about not yet executed trades to be considered instead. An impact from the future on $I$ can be directly estimated from already executed trades, after that directional information on price can be...
6 hours ago
Econometrics Beat wrote a new blog post titled Monte Carlo Simulations & the "SimDesign" Package in R
Past posts on this blog have included several relating to Monte Carlo simulation - e.g., see here, here, and here. Recently I came across a great article by Matthew Sigal and Philip Chalmers in the Journal of Statistics Education. It's titled, "Play it Again: Teaching Statistics With Monte Carlo Simulation", and the full reference appears below. The authors provide a really nice introduction to basic Monte Carlo simulation, using R. In particular, they contrast using a "for loop" approach,...
10 hours ago
The Aleph Blog wrote a new blog post titled Redacted Version of the September 2017 FOMC Statement
July 2017September 2017CommentsInformation received since the Federal Open Market Committee met in June indicates that the labor market has continued to strengthen and that economic activity has been rising moderately so far this year.Information received since the Federal Open Market Committee met in July indicates that the labor market has continued to strengthen and that economic activity has been rising moderately so far this year.No change.  Feels like GDP is slowing, though.Job gains have been solid, on average, since the beginning of the year, and the unemployment rate has declined.Job...
12 hours ago
The Reformed Broker wrote a new blog post titled Michael Bloomberg: Why does the stock market keep rising?
"You think about China … China used to be, made in China? A joke. Cheap stuff, I didn't wanna use it. Today, made in China, quality."...
15 hours ago
Implementing QuantLib wrote a new blog post titled Odds and ends: the Observer pattern
Welcome back. This week, the first of a series of three posts on the implementation of design patterns in QuantLib.
yesterday
Quantitative Finance at arXiv wrote a new blog post titled Universal L\'evy's Stable Law of Stock Market and its Characterization. (arXiv:1709.06279v1 [q-fin.ST])
Price fluctuations in financial markets can be characterized by L\'evy's stable distribution, which is supported by the generalized central limit system. When the stable parameters were estimated from four different stock markets in long term, they similarly indicated an unique value. On the other hand, when analyzed in short term, parameters and the stock prices fluctuated with correlation, which shows that the stock markets are instable.
yesterday
Quantitative Finance at arXiv wrote a new blog post titled Large-Scale Portfolio Allocation Under Transaction Costs and Model Uncertainty. (arXiv:1709.06296v1 [q-fin.PM])
We theoretically and empirically study large-scale portfolio allocation problems when transaction costs are taken into account in the optimization problem. We show that transaction costs act on the one hand as a turnover penalization and on the other hand as a regularization, which shrinks the covariance matrix. As an empirical framework, we propose a flexible econometric setting for portfolio optimization under transaction costs, which incorporates parameter uncertainty and combines predictive distributions of individual models using optimal prediction pooling. We consider predictive...
yesterday
Quantitative Finance at arXiv wrote a new blog post titled The bail-out optimal dividend problem under the absolutely continuous condition. (arXiv:1709.06348v1 [q-fin.MF])
This paper studies the optimal dividend problem with capital injection under the constraint that the cumulative dividend strategy is absolutely continuous. We consider an open problem of the general spectrally negative case and derive the optimal solution explicitly using the fluctuation identities of the refracted-reflected L\'evy process. The optimal strategy as well as the value function are concisely written in terms of the scale function. Numerical results are also given to confirm the analytical conclusions.
yesterday
Quantitative Finance at arXiv wrote a new blog post titled Modeling of the Labour Force Redistribution in Investment Projects with Account of their Delay. (arXiv:1709.06380v1 [q-fin.EC])
The mathematical model of the labour force redistribution in investment projects is presented in the article. The redistribution mode of funds, labour force in particular, according to the equal risk approach applied to the loss of some assets due to delay in all the investment projects is provided in the model. The sample of the developed model for three investment projects with the specified labour force volumes and their defined unit costs at the particular moment is given.
yesterday
Quantitative Finance at arXiv wrote a new blog post titled Kinetic theory and Brazilian income distribution. (arXiv:1709.06480v1 [q-fin.GN])
We investigate the Brazilian personal income distribution using data from National Household Sample Survey (PNAD), an annual research available by the Brazilian Institute of Geography and Statistics (IBGE). It provides general characteristics of the country's population. Using PNAD data background we also confirm the effectiveness of a semi-empirical model that reconciles Pareto power-law for high-income people and Boltzmann- Gibbs distribution for the rest of population. We use three measures of income inequality: the Pareto index, the average income and the crossover income. In order to...
yesterday
Quantitative Finance at arXiv wrote a new blog post titled Numerical analysis for a unified 2 factor model of structural and reduced form types for corporate bonds with fixed discrete coupon. (arXiv:1709.06517v1 [q-fin.PR])
Conditions of stability for explicit finite difference scheme and some results of numerical analysis for a unified 2 factor model of structural and reduced form types for corporate bonds with fixed discrete coupon are provided. It seems to be difficult to get solution formula for PDE model which generalizes Agliardi's structural model [1] for discrete coupon bonds into a unified 2 factor model of structural and reduced form types and we study a numerical analysis for it by explicit finite difference scheme. These equations are parabolic equations with 3 variables and they include mixed...
yesterday
The Bank for International Settlements wrote a new blog post titled FAQs on Basel III definition of capital published by the Basel Committee
Press release about the Basel Committee publishing FAQs on Basel III definition of capital (19 September 2017)
2 days ago
Quantitative Finance at arXiv wrote a new blog post titled Relatedness, Knowledge Diffusion, and the Evolution of Bilateral Trade. (arXiv:1709.05392v1 [q-fin.EC])
During the last decades two important contributions have reshaped our understanding of international trade. First, countries trade more with those with whom they share history, language, and culture, suggesting that trade is limited by information frictions. Second, countries are more likely to start exporting products that are similar to their current exports, suggesting that knowledge diffusion among related industries is a key constrain shaping the diversification of exports. But does knowledge about how to export to a destination also diffuses among related products and geographic...
2 days ago
Quantitative Finance at arXiv wrote a new blog post titled Semi-Static and Sparse Variance-Optimal Hedging. (arXiv:1709.05519v1 [q-fin.MF])
We consider hedging of a contingent claim by a 'semi-static' strategy composed of a dynamic position in one asset and static (buy-and-hold) positions in other assets. We give general representations of the optimal strategy and the hedging error under the criterion of variance-optimality and provide tractable formulas using Fourier-integration in case of the Heston model. We also consider the problem of optimally selecting a sparse semi-static hedging strategy, i.e. a strategy which only uses a small subset of available hedging assets. The developed methods are illustrated in an extended...
2 days ago