All Questions
Tagged with finance statistics
130
questions
2
votes
0
answers
60
views
Deriving the CAPM pricing kernel from the general SDF and consumption-based kernel
I'm reading the paper "Quality minus junk" by Asness et al. (2019) and trying to understand the pricing kernel definition they provide on page 6. The authors present the following pricing ...
- 21
0
votes
0
answers
19
views
How to calculate holding period return of a long-short strategy?
I have daily close prices of two stocks, A and B. Suppose that we long stock A and short stock B. Assume that we do the long-short every day and hold that portfolio for some days. How to calculate ...
- 716
1
vote
1
answer
51
views
Interpretation of Value at Risk and its relationship with the upper percentile
I found this definition of VaR (Value at Risk) in a paper:
VaR is defined as the “possible maximum loss over a given holding period within a fixed confidence level”. That is, mathematically, VaR at ...
0
votes
0
answers
37
views
How do Brownian/Wiener processes involve randomness?
My financial mathematics course notes have
A Brownian motion is a family of random variables $\{B_t|t\geq0\}$ on some probability space $(\Omega,\mathcal{F},P)$ such that: \begin{align}
(1) \; & ...
- 2,281
0
votes
0
answers
143
views
Minimum Variance, Tangency Portfolio, and Efficient Frontier
There are 3 assets $S_1$, $S_2$ and $S_3$. $S_1$ has a mean return of $0.17$ and standard deviation of $0.2$, $S_2$ has a mean return of $0.13$ and standard deviation of $0.4$ and $S_3$ has a mean ...
- 189
1
vote
0
answers
142
views
Using the Kelly criterion, what is the maximum amount you should wager when the odds are unknown?
Thinking from a general, layman's perspective, when one cannot properly assess the risks of a particular situation, but still wants to apply probability to maximize chance of gains, how can one use ...
- 121
0
votes
1
answer
32
views
Determine the annual salary needed to repay a loan
I have the following problem: Determine the annual salary needed to repay a loan of $\$96,750$ with an interest rate of $4.5\%$ for a term of $20$ years.
What I did was first calculate the monthly ...
- 378
0
votes
0
answers
13
views
Testing predictability of a predictor of expected weekely returns on the stock market
say I have a T daily observations for the last ten years on a new predictor $x_t$ which I think is a predictor of the expected weekly return on the stock market, $r_{t,t+5} = r_{t+1}+...+r_{t+5}$, ...
- 161
1
vote
1
answer
66
views
Regression relation to casual relationship
If the correlation coefficient of two variables is 0, can there still be a causal effect between them? And can the causal relationship between these two variables be studied by regression analysis?
- 57
0
votes
0
answers
76
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What is the expectation of the Ito integral $\int_0^tg^2(\tau)dW_\tau$?
I am having some trouble working out $E\left[ \int_0^tg^2(\tau)dW_\tau \right]$. I don't even really know where to begin, I'm very new to Ito Calculus and any help or nudge in the right direction ...
- 11
1
vote
1
answer
56
views
Time Value of Money
Santana is planning for his pension savings:
He plans to work for $20$ years and then retire.
He expects to receive an annuity income of $\$\, 20000$ at the start of each year of his retirement for $...
- 23
1
vote
1
answer
85
views
Whose statement about Brownian Motion correct?
My classmate and I are disagreeing about a point about $X(t)$, a BM.
His statement is that $X(t)$ is normal, my statement is that only increments of $X(t)$ are normal (thus (thus $X(t) - X(0)$ is ...
- 1,173
2
votes
1
answer
65
views
Current value of option
risk free rate=$r$
volatility of stock price=$\sigma$
continuous dividend rate=$q$
$a>0,K>0$
If your stock price S becomes below $K$ at maturity T,
the option A pays you $aS_T$.
Otherwise, this ...
- 149
0
votes
0
answers
119
views
Why is the variance formula different to the portfolio variance formula?
I'm trying to wrap my head around the variance, covariance and correlation. I'm clear on the formulas in their basic forms. However, confused as to why the portfolio variance formula is:$$Std^2=(W_a^2)...
- 1
1
vote
2
answers
3k
views
Compounded Annual Growth Rate with Negatives
I was trying to figure out the CAGR of EBIT of certain companies that filed for bankruptcy. Needless to say, most of these show a negative trend in their EBIT values, often starting from a positive in ...
- 703