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Calibration to American Options: Numerical Investigation of the de-Americanization. (arXiv:1611.06181v1 [q-fin.CP])

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American options are the reference instruments for the model calibration of a large and important class of single stocks. For this task, a fast and accurate pricing algorithm is indispensable. The literature mainly discusses pricing methods for American options that are based on Monte Carlo, tree and partial differential equation methods. We present an alternative approach that has become popular under the name de-Americanization in the financial industry. The method is easy to implement and enjoys fast run-times. Since it is based on ad hoc simplifications, however, theoretical results guaranteeing reliability are not available. To quantify the resulting methodological risk, we empirically test the performance of the de-Americanization method for calibration. We classify the scenarios in which de-Americanization performs very well. However, we also identify the cases where de-Americanization oversimplifies and can result in large errors.


On the wavelets-based SWIFT method for backward stochastic differential equations. (arXiv:1611.06098v1 [math.NA])

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We propose a numerical algorithm for backward stochastic differential equations based on time discretization and trigonometric wavelets. This method combines the effectiveness of Fourier-based methods and the simplicity of a wavelet-based formula, resulting in an algorithm that is both accurate and easy to implement. Furthermore, we mitigate the problem of errors near the computation boundaries by means of an antireflective boundary technique, giving an improved approximation. We test our algorithm with different numerical experiments.

Value-at-Risk Prediction in R with the GAS Package. (arXiv:1611.06010v1 [q-fin.RM])

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GAS models have been recently proposed in time-series econometrics as valuable tools for signal extraction and prediction. This paper details how financial risk managers can use GAS models for Value-at-Risk (VaR) prediction using the novel GAS package for R. Details and code snippets for prediction, comparison and backtesting with GAS models are presented. An empirical application considering Dow Jones Index constituents investigates the VaR forecasting performance of GAS models.

ASIC Commences Civil Penalty Proceedings Against State One Stockbroking Ltd For Failure To Comply With Market Integrity Rules

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ASIC has commenced civil penalty proceedings against State One Stockbroking Ltd (State One) in the Federal Court of Australia in Perth for failing to comply with two ASIC Market Integrity Rules (ASX Market) 2010 (MIRs), following State One's failure to comply with an infringement notice given to it by the Markets Disciplinary Panel (MDP). 

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GTX Hires Edward Brown to Run Swap Execution Facility - Company To Increase Focus On Solutions As Regulation Reshapes The FX Market

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GTX, the institutional foreign exchange trading arm of GAIN Capital Holdings Inc., today announces the appointment of Edward Brown as Chief Executive Officer (CEO) of GTX SEF, LLC, a Swap Execution Facility (SEF).

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Chief Litigation Counsel Matthew C. Solomon To Leave SEC

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The Securities and Exchange Commission today announced that Matthew C. Solomon, the Chief Litigation Counsel for the SEC’s Enforcement Division, will leave the agency early next month.

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TMX Group Statement On Competition Bureau Announcement

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TMX Group welcomes today's announcement that the Commissioner of Competition has discontinued his investigation into allegations that TMX Group engaged in conduct contrary to the provisions of the Competition Act. TMX Group cooperated fully during the investigation and remains firmly committed to conducting business with integrity in full compliance with the Competition Act and in keeping with our public interest mandate.

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Canada's Competition Bureau Statement Regarding Its Investigation Into Alleged Anti-Competitive Conduct By TMX Group Limited

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Today, the Commissioner of Competition (the “Commissioner”) announced that he has discontinued his investigation into allegations that TMX Group Limited (“TMX Group”) engaged in conduct contrary to the restrictive trade practices provisions of the Competition Act (the “Act”). This statement summarizes the Competition Bureau’s (the “Bureau”) approach in respect of this investigation.

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Trading And Markets Director Stephen Luparello To Leave SEC

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The Securities and Exchange Commission today announced that Stephen Luparello, Director of the Division of Trading and Markets, will leave the agency by the first of the year.  He was named director of the office in February 2014.

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Dynamical Stationarity as a Result of Sustained Random Growth. (arXiv:1611.06698v1 [cond-mat.stat-mech])

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In sustained growth with random dynamics stationary distributions can exist without detailed balance. This suggests thermodynamical behavior in fast growing complex systems. In order to model such phenomena we apply both a discrete and a continuous master equation. The derivation of elementary rates from known stationary distributions is a generalization of the fluctuation--dissipation theorem. Entropic distance evolution is given for such systems. We reconstruct distributions obtained for growing networks, particle production, scientific citations and income distribution.

Systemic Risk and Interbank Lending. (arXiv:1611.06672v1 [q-fin.MF])

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We propose a simple model of inter-bank lending and borrowing incorporating a game feature where the evolution of monetary reserve is described by a system of coupled Feller diffusions. The optimization subject to the quadratic cost reflects the desire of each bank to borrow from or lend to a central bank through manipulating its lending preference and the intention of each bank to deposit in the central bank in order to control the volatility for cost minimization. We observe that the adding liquidity creates a flocking effect leading to stability or systemic risk depending on the level of the growth rate. The deposit rate diminishes the growth of the total monetary reserve causing a large number of bank defaults. The central bank acts as a central deposit corporation. In addition, the corresponding Mean Field Game in the case of the number of banks $N$ large and the infinite time horizon stochastic game with the discount factor are also discussed.

Quantifying immediate price impact of trades based on the $k$-shell decomposition of stock trading networks. (arXiv:1611.06666v1 [q-fin.TR])

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Traders in a stock market exchange stock shares and form a stock trading network. Trades at different positions of the stock trading network may contain different information. We construct stock trading networks based on the limit order book data and classify traders into $k$ classes using the $k$-shell decomposition method. We investigate the influences of trading behaviors on the price impact by comparing a closed national market (A-shares) with an international market (B-shares), individuals and institutions, partially filled and filled trades, buyer-initiated and seller-initiated trades, and trades at different positions of a trading network. Institutional traders professionally use some trading strategies to reduce the price impact and individuals at the same positions in the trading network have a higher price impact than institutions. We also find that trades in the core have higher price impacts than those in the peripheral shell.

Model reduction for calibration of American options. (arXiv:1611.06452v1 [math.NA])

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American put options are among the most frequently traded single stock options, and their calibration is computationally challenging since no closed-form expression is available. Due to the higher flexibility in comparison to European options, the mathematical model involves additional constraints, and a variational inequality is obtained. We use the Heston stochastic volatility model to describe the price of a single stock option. In order to speed up the calibration process, we apply two model reduction strategies. Firstly, a reduced basis method (RBM) is used to define a suitable low-dimensional basis for the numerical approximation of the parameter-dependent partial differential equation ($\mu$PDE) model. By doing so the computational complexity for solving the $\mu$PDE is drastically reduced, and applications of standard minimization algorithms for the calibration are significantly faster than working with a high-dimensional finite element basis. Secondly, so-called de-Americanization strategies are applied. Here, the main idea is to reformulate the calibration problem for American options as a problem for European options and to exploit closed-form solutions. Both reduction techniques are systematically compared and tested for both synthetic and market data sets.

Interplay between endogenous and exogenous fluctuations in financial markets. (arXiv:1611.06407v1 [q-fin.ST])

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We address microscopic, agent based, and macroscopic, stochastic, modeling of the financial markets combining it with the exogenous noise. The interplay between the endogenous dynamics of agents and the exogenous noise is the primary mechanism responsible for the observed long-range dependence and statistical properties of high volatility return intervals. By exogenous noise we mean information flow or/and order flow fluctuations. Numerical results based on the proposed model reveal that the exogenous fluctuations have to be considered as indispensable part of comprehensive modeling of the financial markets.

Regression-based complexity reduction of the dual nested Monte Carlo methods. (arXiv:1611.06344v1 [q-fin.CP])

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In this paper we propose a novel dual regression-based approach for pricing American options. This approach reduces the complexity of the nested Monte Carlo method and has especially simple form for time discretised diffusion processes. We analyse the complexity of the proposed approach both in the case of fixed and increasing number of exercise dates. The method is illustrated by several numerical examples.


Shenzhen Stock Exchange Market Bulletin 21 November, 2016, Issue 39

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SZSE promulgated the Guidelines on Information Disclosure of three industries: seed and planting, construction machinery, and decoration industry. Taking industrial characteristics, investor demand and information disclosure cost of listed companies into consideration, the Guidelines clearly regulated disclosure requirements of periodic report and interim report, first disclosure and continuous disclosure obligations, industrial characteristics and business scope, industrial chain and core competitiveness, value and risk, financial and non-financial information by emphasizing industrial characteristics and risks respectively. In addition, the Guidelines expanded the flexibility of specific rules based on industrial characteristics.

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Shanghai Stock Exchange: First AdjustmentTto SSE 50 ETF Option For Dividend Distribution

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On November 11, 2016, Huaxia Fund Management Co., Ltd. issued the “Announcement on Dividend Distribution of SSE 50 ETF”, stating that the SSE 50 ETF (ticker symbol: 50 ETF; code: 510050) would distribute dividend, with the ex-dividend date of November 29. It will be the first dividend distribution by the underlying of the SSE 50 ETF option contract since the option’s launch on February 9, 2015. The Shanghai Stock Exchange (SSE) will, according to the “SSE Rules for Pilot Program of Stock Option Trading”, adjust all the unexpired contracts of the SSE 50 ETF option on November 29 and re-launch new option contracts.

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ASIC: Relief For Foreign Financial Service Providers From Luxembourg

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ASIC has extended its relief for foreign financial service providers (FFSPs) from the requirement to hold an Australian financial services (AFS) licence when providing financial services to Australian wholesale clients by Luxembourg fund managers.

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Shanghai Stock Exchange Improves Review Remedy System To Protect Legitimate Rights & Interests Of Self-regulation Entities

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Approved by the China Securities Regulatory Commission (CSRC), the Shanghai Stock Exchange (SSE) has recently issued the “SSE Measures for Implementation of Review” (the Measures for short), further improving the review system and strengthened the protection for the legitimate rights and interests of the self-regulation entities.

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