Monday, March 02, 2015

Financial friction

There is a lot of discussion of macroeconomic models that include financial frictions.  These attempt to add something that resembles the financial crisis to the standard DSGE model.

There is a discussion on Robert's Stochastic Thoughts that attempts to link Keynes' Chapter 12 to the models of the consumption function.  There is plenty of scope here to mix theory and empirical evidence on the performance of savings.

I will add more here as I find it.

Friday, February 27, 2015

Asset Pricing [9a : Regime Switching] | Alpha Hive ::

Asset Pricing [9a : Regime Switching] | Alpha Hive provides an overview of the HMM.  There are reproductions of a paper by Kirtzman et al in the Financial Analysts journal.  That is gated.

"One point of departure between my and QP’s post relates to the library/package used to estimate the hidden markov model. While QP used the RHmm package, I can only use the depmixS4 package (RHmm seems to be incompatible with newer versions of R…at least for me). As far as I can tell,the depmixS4 package does not support forecasting which means that I will probably not be able to take a gander at the out-of-sample issues alluded to above"

The starting point for this is the discussion on stack exchange.

Thursday, February 26, 2015

Why does the volatility smile flatten as maturities increase? - Quantitative Finance Stack Exchange

Why does the volatility smile flatten as maturities increase? - Quantitative Finance Stack Exchange: "First, I can't find a purely "financial" explanation for this.

Also the only mathematical explanation I've found so far was using the large deviations theory, which is quite complex.

Is there a rather simple mathematical explanation ?

Thanks !"

'via Blog this'

Sunday, February 15, 2015

Mr. Spearman or how to explore changes in trends

Mr. Spearman or how to explore changes in trends discusses the evolution of baby names, identifying break points and the use of the spearman coefficient:

"So what I need is a way of measuring how similar two ranked lists are… And good news! this metric exists and is provided by the Spearman’s Correlation Coefficient for Ranks (SCCR) -BTW, the Kendall correlation coefficient does the job as well-.
For each year, I computed the SCCR value with all other years split by gender. I created a scattered plot where the size and the transparency of each point is determined by the SCCR value. Intuitively if we have a look at the diagonal, bigger opaque points together form a cluster where the trend persists and places with almost no color in this diagonal represent trend interruption."

There should be a way to apply this to the MPC voting.  The order could be the dove to hawk and the change in personnel would be the equivalent to new members of the committee.

Wednesday, February 11, 2015

How a lone hacker shredded the myth of crowdsourcing — Backchannel — Medium

How a lone hacker shredded the myth of crowdsourcing — Backchannel — Medium: "Luckily for platforms like Wikipedia or Amazon’s Mechanical Turk, the prospect for longer-term crowdsourcing projects are not so bleak. Game theorists have found that systems where individuals can build up a good reputation, are (probably) not as prone to devastating attacks from within."

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Saturday, January 31, 2015

Virtual firms

David Morris – Aeon speaks about virtual firms:

"Imagine, for instance, a bike-rental system administered by a DAC hosted across hundreds or thousands of different computers in its home city. The DAC would handle the day-to-day management of bikes and payments, following parameters laid down by a group of founders. Those hosting the management programme would be paid in the system’s own cryptocurrency – let’s call it BikeCoin. That currency could be used to rent bikes – in fact, it would be required to, and would derive its value on exchanges such as BitShares from the demand for local bike rentals."

The firms manage themselves and optimise their performance.  I need to understand more about biitcoin to understand this. This is the management in bunny slippers.

Friday, January 30, 2015

“Microfoundations” ain’t so microfounded

Bull Market and microfoundations:  fundamental right but does he miss the fact that these are supposed to be simplifying models?  The multiple layers of agency may be impossible to model.  Then you are left with a story.

 "And that tractable composite of all the principal and agent problems in the whole economy — what’s it going to look like? Well, it’s going to look like an “animal spirits”, from a classic Keynesian model, or one of Roger Farmer’s. We know that all the different levels of game theory interactions do sort of work out in the real economy, because investment behaviour does take place. But we also know that they’re subject to fairly wide swings and overreactions."

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