Frequently Asked Questions In Quantitative Finance

62 Frequently Asked Questions In Quantitative Finance number of taxis in the city from that event is a question of assumptions a ...

Chapter 2: FAQs 63 0.1) is 1 √ 2 π 0. 1 exp ( − 2. 62 2 × 0. 12 ) = 610 −^147. Very, very unlikely! (N.B. The word ‘probability’ ...

64 Frequently Asked Questions In Quantitative Finance column represents the probability of drawing 0.37 from each of the hats, a ...

Chapter 2: FAQs 65 (A multiplicative factor has been ignored here.) I.e. − N σ + 1 σ^3 ∑N i= 1 φi^2 = 0. Therefore our best gues ...

66 Frequently Asked Questions In Quantitative Finance References and Further Reading Eliason, SR 1993Maximum Likelihood Estimati ...

Chapter 2: FAQs 67 What is Cointegration? Short Answer Two time series are cointegrated if a linear combination has constant mea ...

68 Frequently Asked Questions In Quantitative Finance see whether two stocks stay close together we need a definition ofstationa ...

Chapter 2: FAQs 69 This is clearly easier than using all 500 stocks for the tracking (when, of course, the tracking error would ...

70 Frequently Asked Questions In Quantitative Finance What is the Kelly criterion? Short Answer The Kelly criterion is a techniq ...

Chapter 2: FAQs 71 The expected growth rate is pln(1+f)+(1−p)ln(1−f). This function is plotted below forp= 0 .55. This expected ...

72 Frequently Asked Questions In Quantitative Finance generally, if the investment has an expected return of μand a standard dev ...

Chapter 2: FAQs 73 Why Hedge? Short Answer ‘Hedging’ in its broadest sense means the reduction of risk by exploiting relationshi ...

74 Frequently Asked Questions In Quantitative Finance do we have to specify the dynamics of the asset, not even its volatility, ...

Chapter 2: FAQs 75 You would then only be exposed to basis risk. Be careful with this because there may be times when the close ...

76 Frequently Asked Questions In Quantitative Finance zero. This is often quite satisfactory in practice but is usually theoreti ...

Chapter 2: FAQs 77 a portfolio that has a positive payoff whatever hap- pens to the market. A simple example of this would be to ...

78 Frequently Asked Questions In Quantitative Finance Crash (Platinum) hedging The final variety of hedging is specific to extre ...

Chapter 2: FAQs 79 What is Marking to Market and How Does it Affect Risk Management in Derivatives Trading? Short Answer Marking ...

80 Frequently Asked Questions In Quantitative Finance to be, or the profit you expect to make. After all, you presumably entered ...

Chapter 2: FAQs 81 Use prices obtained from brokers. This has the advantage of being real, tradeable prices, and unprejudiced. ...