Frequently Asked Questions In Quantitative Finance

82 Frequently Asked Questions In Quantitative Finance in the end, just a bit out in the timing. The loss could have reversed, bu ...

Chapter 2: FAQs 83 What is the Efficient Markets Hypothesis? Short Answer An efficient market is one where it is impossible to b ...

84 Frequently Asked Questions In Quantitative Finance make excess returns by using methods such as techni- cal analysis. A tradi ...

Chapter 2: FAQs 85 excess returns. This is commonly seen when new con- tracts, exotic derivatives, are first created leading to ...

86 Frequently Asked Questions In Quantitative Finance References and Further Reading Fama, EF 1965 Random Walks in Stock Market ...

Chapter 2: FAQs 87 What are the Most Useful Performance Measures? Short Answer Performance measures are used to quantify the res ...

88 Frequently Asked Questions In Quantitative Finance If returns are normally distributed then the Sharpe ratio is related to th ...

Chapter 2: FAQs 89 variance because fewer data points are used in its cal- culation. Treynor Ratio The Treynor orReward-to-varia ...

90 Frequently Asked Questions In Quantitative Finance What is a Utility Function and How is it Used? Short Answer A utility func ...

Chapter 2: FAQs 91 have certain commonsense properties. In the following′ denotes differentiation with respect toW. The functio ...

92 Frequently Asked Questions In Quantitative Finance outcomes, and then average the utility. This leads on to the idea of certa ...

Chapter 2: FAQs 93 we find that the certainty equivalent is $2.34. So we would pay this amount or less to play the game. Above i ...

94 Frequently Asked Questions In Quantitative Finance What is Brownian Motion and What are its Uses in Finance? Short Answer Bro ...

Chapter 2: FAQs 95 Markov: the conditional distribution ofWtgiven information up untilτ<tdepends only onWτ. Martingale: give ...

96 Frequently Asked Questions In Quantitative Finance References and Further Reading Bachelier, L 1995Th ́eorie de la Sp ́eculat ...

Chapter 2: FAQs 97 What is Jensen’s Inequality and What is its Role in Finance? Short Answer Jensen’s Inequalitystates^1 that if ...

98 Frequently Asked Questions In Quantitative Finance could calculate the expected stock price at expiration asE[ST], and then t ...

Chapter 2: FAQs 99 variable or parameter is random, then allowance must be made for this in the pricing. To do this correctly re ...

100 Frequently Asked Questions In Quantitative Finance What is Itˆo’s Lemma? Short Answer Itˆo’s lemma is a theorem in stochasti ...

Chapter 2: FAQs 101 1.Whenever you getdX^2 in a Taylor series expansion of a stochastic variable you must replace it withdt. 2.T ...