Frequently Asked Questions In Quantitative Finance

42 Frequently Asked Questions In Quantitative Finance Table 2.1:Degree of confidence and the relationship with deviation from th ...

Chapter 2: FAQs 43 Within the time horizon positions could change dramatically (due to normal trading or due to hedging or expi ...

44 Frequently Asked Questions In Quantitative Finance What is CrashMetrics? Short Answer CrashMetrics is a stress-testing method ...

Chapter 2: FAQs 45 In CrashMetrics the risk in this portfolio is measured as the worst case over some range of equity moves: wor ...

46 Frequently Asked Questions In Quantitative Finance the index falls by 10% XYZ will fall by 12%. The crash coefficient therefo ...

Chapter 2: FAQs 47 reporting risk providing trading limits to avoid intolerable performance during a crash References and Furt ...

48 Frequently Asked Questions In Quantitative Finance What is a Coherent Risk Measure and What are its Properties? Short Answer ...

Chapter 2: FAQs 49 can’t get any worse than adding the two risks separately. Indeed, there may be cancellation effects or econom ...

50 Frequently Asked Questions In Quantitative Finance damaging tail events. Another measure that is coherent isExpected Shortfal ...

Chapter 2: FAQs 51 What is Modern Portfolio Theory? Short Answer The Modern Portfolio Theory (MPT) of Harry Markowitz (1952) int ...

52 Frequently Asked Questions In Quantitative Finance stocks (choose two fromNwithout replacement, order unimportant). To Markow ...

Chapter 2: FAQs 53 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 0% 10% 20% 30% 40% 50% 60% 70% 80 % Risk Return market portfolio Fi ...

54 Frequently Asked Questions In Quantitative Finance What is the Capital Asset Pricing Model? Short Answer The Capital Asset Pr ...

Chapter 2: FAQs 55 return on the market as a whole (or some representative index),RMby Ri=αi+βiRM+ (^) i. The (^) iis random wit ...

56 Frequently Asked Questions In Quantitative Finance we have μ=α+βE[RM]=α+βμM. Similarly the risk inis measured by σ= √ ...

Chapter 2: FAQs 57 References and Further Reading Lintner, J 1965 The valuation of risk assets and the selection of risky invest ...

58 Frequently Asked Questions In Quantitative Finance What is Arbitrage Pricing Theory? Short Answer The Arbitrage Pricing Theor ...

Chapter 2: FAQs 59 We write the random return on theith asset as Ri=αi+ ∑n j= 1 βjiRj+ (^) i, where theRjare the factors, theαsa ...

60 Frequently Asked Questions In Quantitative Finance a default spread on corporate bonds an exchange rate Statistical variabl ...

Chapter 2: FAQs 61 What is Maximum Likelihood Estimation? Short Answer Maximum Likelihood Estimation (MLE) is a statisti- cal te ...