It is a relatively simple matter to backtest a strategy trading price-based expectations: a little spreadsheet know-how or, failing that, any of the scores of software packages now on offer will get the job done. But testing the historical performance of well-defined options strategies involves much more complexity, and imposes significantly greater data requirements. The difference between stocks/futures/forex and options is so great, in fact, that no retail platform today offers a straightforward way to run thorough tests of quantitative…
Some interesting articles have been added to the forthcoming list at Quantitative Finance. Cites and abstracts are below, with links to preprints where available. I don’t have time to add commentary at the moment, but am happy to answer questions in the comments section.
Abel Rodriguez & Enrique Ter Horst, “Measuring expectations in options markets: an application to the S&P500 index.”
Extracting market expectations has always been an important issue when making national policies and investment decisions in financial markets. In options…
From the Wikipedia entry:
A correlation swap is an over-the-counter financial derivative that allows one to speculate on or hedge risks associated with the observed average correlation of a collection of underlying products, where each product has periodically observable prices, as with a commodity, exchange rate, interest rate, or stock index.
…
Pricing and valuation
No industry-standard models yet exist that have stochastic correlation and are arbitrage-free.
Quants: get to work. EDIT: Mostly kidding, of course – unless you a) have some kind of affective disorder…
UPDATE: Thanks to everyone who attended. Here are the presentation slides. Feel free to contact me with any questions.
I’m giving a presentation tomorrow evening. Attendance is free.
Risks Taken Unintentionally: Volatility and the Lessons of the 2008 Financial Crisis
Tuesday, November 24, 2009, 9:00PM ET
http://joinwebinar.com/
Webinar ID: 736952386
Topics to be covered include the equity risk premium, the variance risk premium, and six lessons to be learned from the financial crisis. The webinar room is hosted by Commodity Trading School and is active most of the…
M. Levy, “Loss aversion and the price of risk,” Quantitative Finance (forthcoming):
Abstract: This paper derives a simple theoretical relationship between the degree of loss aversion, the concavity/convexity of the value function, and the equilibrium market price of risk. We show that while the degree of loss aversion is key in determining the market price of risk, the convexity/concavity of the value function is much less important in this respect. The theoretical relationship obtained is tested empirically by using international data from…
Monday, April 12, 2010
3 Comments