Bloomberg Businessweek, commonly and formerly known as BusinessWeek, is a weekly business magazine published by Bloomberg L.P. Founded in 1929, the magazine was created to provide information and interpretation about what was happening in the business world. BusinessWeek was first published in September 1929, only weeks before the stock market crash of 1929. The magazine provided information and opinions on what was happening in the business world at the time. Early sections of the magazine included marketing, labor, finance, management and Washington Outlook, which made BusinessWeek one of the first publications to cover national political issues that directly impacted the business world.

I am offered a 15% off coupon for Bloomberg Businessweek, so should you are interested, you can order 16 Issues of Bloomberg Businessweek for $15! (That's an 81% Savings)!.

Tags - coupon

Whether it is the risk of falling behind, peer group pressure or ill-defined incentive schemes, there exists a tendency to choose direction based on the illusion of control when there is actually too much uncertainty. Instead, questions should be asked as to whether decisions based on more or less unfounded assumptions should be made at all. Unfounded and inappropriate assumptions are dangerous because of at least two well-known biases. First, we tend to be over-confident in our ability to make financial and economic probability models. The second bias is our tendency to favour information that confirms our beliefs or hypotheses. This is called the confirmation bias. Moreover, by using hyperbolic discounting we reveal a strong tendency to make choices that are inconsistent over time. In other words, we make choices today that our future self would prefer not to make, despite using the same reasoning. Therefore, CRO’s and all other professionals should minimize their bold assumptions about how the economy works. We know much less than we think we know. Warren Buffet, the highly successful investor, sets strict restraints on using assumptions. He nevertheless makes above average profits.

The volatility is wrong when you really need it. When reading this sentence most risk managers immediately think about skewness, kurtosis or perhaps about extreme losses. However, it is necessary to take it one step further. Most of the risk indicators, also in a regulatory context, are based on statistics. In most circumstances this is a second moment, named "variance" or "volatility". The volatility is however an affect heuristic driven indicator. It has no real correlation with the actual risk. The affect heuristic leads people to have a low perception of risk when we feel positive about the economy (and the other way around). However, during long periods of bull markets – driven by debt accumulation – actual risk (e.g. the probability of a deep debt crisis) increases, but our perception of risk reduces.

What you are really interested in is the consequence of market shocks when it actually goes terribly wrong. In this way you correlate risk with the probability of survival of your firm. The use of volatility is a good example of attribute substitution. A complex problem (what are the consequences of a serious meltdown) is replaced with a less complex problem (what is the observed volatility of the market over the last few months/years), at which point the answer to the less complex problem is seen as the solution to the original problem. Risk indicators should be correlated with actual risk, not with indicators such as (implied) volatility. A better risk indicator is the price to profit ratio of stocks, which reveals – in combination with debt levels – a lot about instability accumulating in an economy.

There is a combination of eagerness to use complex models and too high a dependence on (recent) data that makes the use of models tricky at the very least. The quantitative models used in the financial sector are not fit for their purpose. For the models to perform reasonably well they need more regime shifts and more chaos components. For example, when we add debt to macro-economic models, they become very unstable. The economy and the financial markets follow an almost chaotic process. This, however, makes models almost impossible to calibrate. Additions, such as jump diffusion, copulas and stochastic volatilities are well-intentioned attempts to bring the models closer to reality, but this is still not close enough. We know reality is much more unstable. But, we don't like ambiguity, so we replace this with clear models. However, in the end they are still based on the implausible assumption of a stable repeating data generating process. Complex models also challenge our biased cognitive abilities. This especially holds true for the interpretation of model results. It is better to use simple models and perform many back- and stress tests and to focus on the underlying data, including data from past debt crises.

According to Shiller, the human mind thinks in terms of stories, with internal logic and dynamics that appear as a unified whole. Taleb calls it "explanations (stories) bind facts together". There is a direct link between the content of stories, the collective confidence and the booms and busts of the financial markets. The spread of stories, and thus the collective confidence or pessimism, could be compared to an epidemic, which tends to spread extremely quickly and without warning. This is why the economy follows an almost chaotic process. Collective confidence does not necessary mean a strong economy; even worse, it can lead to growing instability. One should remember that it does not matter what something looks like, it's how it behaves that counts. What makes it even more confusing is that the models seem to prove the story. The estimations based on data seem to be statistically significant, but in reality this is false. The underlying process changes when an economy tips! The CRO should not blindly follow the herd. Thinking in advance about other stories will improve the chance of survival when the stories start to change. Directly related to this topic is the use of scenario thinking in risk management. With proper scenarios, which are at the very heart of risk management – the minimization of unbearable loss – will be more successful.

As we have already seen, the brain makes decisions based on simplifications or so-called rules of thumb. These heuristics and biases have a tendency to deviate our decision-making from rationality and are at the root of our structurally making the same mistakes over and over again. Even if models work correctly, the resulting decision can still be irrational, usually because of (unconscious) emotions. Emotions and behaviour play a large role in decision-making. Seemingly rational decisions are actually driven by fear, loss aversion and affective forecasting. For example, people act completely differently when they are confronted with a loss than when they find themselves in a profit situation. This is a well-known and important aspect of Prospect Theory that is known as "aversion to a sure loss". Many more of these emotional aspects, that make us decide depending on the emotional state we're in, are known. Understanding all of this, it seems strange that no one in financial institutions is formally given the role of monitoring the behaviour and emotions of the senior management. Perhaps supervisory boards should consider hiring behavioural specialists. At the very least, the senior management and thus the CRO, should start conducting behavioural self-assessments.

Tags - quant , magazine

I would like to express utmost thanks to my supervisor, Professor David Newton, for his continued encouragement, support and guidance throughout the course of my PhD research. I am grateful for his patience, interest and willingness to accept my PhD research topics. Not only does he provide me with research guidance but also his advice for my career drives the whole course of research and makes the three-year PhD study in Nottingham much more interesting.

I thank my parents for their unconditional love and understanding. My life wouldn’t be as it is now without their selfless support. I also want to thank Ms. Haoyu Ma, who has always been at my side supporting me throughout this whole research. Your love and support make every mission possible.

I also take this opportunity to show my thanks to my PhD colleagues and friends at the Nottingham University Business School for their encouragement and help. Spending three fantastic years with you is memorable for the rest of my life. In particular, I would like to thank Dr. Huainan Zhao, Dr. Kai Dai, Ms. Ting Qiu and Mr. Ding Chen, who have always provided me with invaluable advice and suggestions, and helped me in the many ways they can.

Importantly, I thank my co-authors, Dr. Qian Han, Dr. Doojin Ryu, Dr. SongTao Wang, and Prof. David Newton. Our publications and working papers would not be so great without your collaboration. I also appreciate the fly-out opportunities given by University of Otago (New Zealand), Renmin University (China), and KAIST (Korea Advanced Institute of Science and Technology), I had very good time and the experience is memorable no matter an offer will be given or not.

Finally, thanks for your continue reading my blog despite my infrequent posts this year. A photo taken few weeks ago when I visit a famous temple in HangZhou, China, wish you all healthy and successful in the coming year.

Tags - thanksgiving

An excellent review book on liquidity and asset prices by three experts Yakov Amihud, Haim Mendelson, and Lasse Heje Pedersen. A good bed reading one.

Quotation

We review the theories on how liquidity aﬀects the required returns of capital assets and the empirical studies that test these theories. The theory predicts that both the level of liquidity and liquidity risk are priced, and empirical studies ﬁnd the eﬀects of liquidity on asset prices to be statistically signiﬁcant and economically important, controlling for traditional risk measures and asset characteristics. Liquidity-based asset pricing empirically helps explain (1) the cross-section of stock returns, (2) how a reduction in stock liquidity result in a reduction in stock prices and an increase in expected stock returns, (3) the yield differential between on- and oﬀ-the-run Treasuries, (4) the yield spreads on corporate bonds, (5) the returns on hedge funds, (6) the valuation of closed-end funds, and (7) the low price of certain hard-to-trade securities relative to more liquid counterparts with identical cash ﬂows, such as restricted stocks or illiquid derivatives. Liquidity can thus play a role in resolving a number of asset pricing puzzles such as the small-ﬁrm eﬀect, the equity premium puzzle, and the risk-free rate puzzle

Download Book here.

Tags - liquidity , return

Investors across the globe aspire to use the Bloomberg terminal which certainly gives a deep insight to almost everything from the world of investments. The guide which follows provides you with all possible information on the Bloomberg Terminal. The guide provides an overview of the following topics:

• Starting and Installing the terminal

• Navigating through the options

• Checking out Tickers

• Accessing the Help Options

• Sending Messages

• Getting Updates and News

• Analysis of the Securities

The Bloomberg System requires the installation of a high functioning keyboard that comes with special keys especially made for this terminal. The crucial part for a layman is that he needs to be conversant with the navigation controls that find a discussion below.

A Bloomberg Terminal can be initiated in two ways. You can contact the Bloomberg team so that the customer care executive can list down your needs and send a sales representative to contact you accordingly. It is a noteworthy fact that the terms and conditions of the contract differ with respect to the priorities of different users and therefore is different for every user. The software being expensive, it may not sound practicable to install a separate terminal for each user. Though the software is fit to be installed into certain operating systems that are more common, the company gives a specially designed and enabled keyboard.

As soon as the installation is complete, the users need to learn the navigation process which begins with the login page where the user needs to put the login requisites as provided by the company.

The Bloomberg Terminal comes with an entirely different interface as compared with the more common ones of the ordinary system. Besides containing all the keys that an ordinary keyboard contains, the special keyboard for the terminal contains two extra keys above the F1 to F12 keys. These extra keys help the user to access the advanced features which come with this software.

In order to examine a stock, you just need to press the EQUITY button. The CURRENCY button helps you to compare the rates of the US dollars with that of the EURO and also other currencies. Through the MESSAGE key you can communicate with other users or can even send your GRABS via emails into your inbox. Every other relevant information is provided about the terminal as you go to the HELP key.

The Bloomberg Terminal depends on tickers and abbreviations for all its functioning. When you want to view a specific stock such as that of the Polaris Industries Inc. you just need to type in (PII) following which you need to press the EQUITY key and then press the enter key. The screen that comes up shows all the particulars concerning the stock. As a layman, one may not know all the operations and functions associated with the terminal. A regular user can grab in the functions and shortcuts with time and experience. Some of the most used shortcuts include MSFT DES DIV CACS and others. Given the variety of functions offered by the terminal it is advisable to use the menus in which you can select the functions you require.

The Bloomberg Terminal primarily aims at analysing the individual investments. While it monitors and records the market movements, it keeps a track of the news so as to be updated with the latest information. You can make your choice from a number of options available and also can lock the specific area or field for which you need the news updates. Suppose if a person residing in the United States wants to be updated with the news of stock market e.g. NYSE or NASDAQ, Bloomberg Terminal enables him to fix his choice. With the TOP function you can also update yourself with the fresh news of the hour. You can avail of the facility of monitoring the market movement as the terminal gives you all the coverage of the market movement which provides you with the knowledge of different market sector as well as private asset classes.

The Bloomberg Terminal is built up with the special feature that enables you to monitor the economic forecasts as well as other releases. By typing in ECO GO the user can have access to the main economic page where every data concerning economics is present. The user can be aware of the current state of economics, the current economic forecasts and the data releases. You can even make yourself acquainted with the views of all the internationally famous economists. For your output, you get to see the postings on the screen displayed before you, where you also get to see the updates. The dropdown menus help you to browse in accordance with the regions you specify from the option Region. You can also specify to your terminal the country that you want to follow.

One of the foremost functions of the Bloomberg Terminal is to analyse the individual securities. The system has a great capacity and asset classes are mostly included, viz.:

• Equities

• Currencies

• Fixed Income securities

• Commodities

• ETFs

• Mutual Funds

• And a few more

If you are a layman or a beginner, you are required to follow certain basic functions while you are also provided with certain facilities. The Bloomberg team comes at your assistance in case you are troubled with any of the functions of the terminal. The foremost thing that most of the users do is searching the tickers for the particular field with which they are concerned. For example, if you hit the asset class (example, EQUITIES) and then type TK and then the security name (example, Polaris), the ticker referring to the security name is instantly displayed before you. If the stock that you have been searching is listed over numerous exchanges, you will be shown all the tickers related to the security name. It however requires mention that the name of the security should be typed with the correct spelling so as to avoid delays in displaying the results. It should also be seen that the security name should be specific.

As soon as you choose your ticker the starting page appears. This is the description page. The page can be accessed with no delay if the user knows the ticker. The user just needs to type DES “security ticker”. The description page shows such details as market capitalization, dividend yield, price quote, 52 week high/low, P/E ratio and more. The terminal even enables its users to have updates and information on the details of contact of the company concerned. It also makes the user aware of the breakup of earnings and revenue which depends on the location of the place, geographically. The user can go through the record of the financial side of the company.

The Bloomberg Terminal becomes all the more useful in case you want to retrieve the history of the price of a particular security for which you are eager to know the patterns of trading. You can do this by simply typing in HP and a screen will appear before you showing all the prices of the security. The terminal offers the advanced suite enabled with charting capacity for the users who want more advanced technical analysis. Bollinger bands, relative strength indicators, charts designed to compare different securities, and volume charts are some of the tools that are provided by the Bloomberg Terminal. Through this unique terminal you can even have access to the updates of a particular company of your interest.

This serves as a guide that comes handy for you if you choose to initiate yourself into using the Bloomberg Terminal. It provides the beginner with a guide for the basics of the terminal. For more advanced and in-depth knowledge into the software it is recommended to refer to the Bloomberg helpdesk where the concerned professionals solve all the queries. Anyone finding interest in the positions of the financial market can avail of the uses offered by the terminal. Other than its expense, Bloomberg Terminal has come up to be boon for its users. The terminal keeps the enthusiastic users updated with the news and updates of the financial market. In case if you have a query regarding the terminal or if you have trouble operating the system, you can post your query. I will answer your queries with pleasure.

Tags - bloomberg

Institute of Mathematics of the National Academy of Sciences in association with Yerevan State University and American University of Armenia is organizing a Workshop on Stochastic and PDE Methods in Financial Mathematics in September 7 - 12, 2012 to be held in Yerevan, Armenia.

The program of the workshop will consist of invited 50 minutes plenary lectures and contributed 20 minutes talks, poster sessions as well as short presentations.

The registration deadline is August 10, 2012. The deadline for abstract submission is July 31, 2012.

Online registration is available at:

http://math.sci.am/conference/sept2012/registration.html

e-mail: mathconf@gmail.com, mathconf@ysu.am

web page: http://math.sci.am/conference/sept2012/index.html

Fax: (+374 10) 524801

We are looking forward to see you in Armenia in September, 2012!

With kind regards,

Michael Poghosyan

Department of Mathematics and Mechanics

Yerevan State University,

Alex Manoogian 1, 0025, Yerevan, Armenia.

Tags - pde , stochastic , conference

Many people grossly mis-estimate just how much hedge fund managers make, often quoting celebrities they assumed to of earned more. The fact is that this elite group generally goes by unreported and anonymous despite the fact they make more than the GDP equivalent of many small countries combined, every year, even in the depths of one of the worse financial recessions the world has seen for decades.

Uncover the secrets of the elite group that makes up the worlds richest hedge fund managers and share with your friends in this catch infographic!

Click here for a larger pic.

Infographic by BrokerReview.org - a user driven social comparison site for online stock and forex brokers.

Tags - hedge , fund, , manager, , rich

**First International Conference on Futures and other Derivative Markets**

15-16 October 2012

Beihang University, Beijing, China

________________________________________

The Shanghai Futures Exchange, Beihang University and Renmin University of China are jointly organizing a conference on the topic of futures and other derivative markets. This conference aims to join academics and business economists to discuss a wide variety of topics on global derivative especially futures markets and their implications for practitioners.

Submission: Complete papers should be sent to DerivativeConference@gmail.com by July 8, 2012. Feel free to address any enquiries to this address as well.

Participation: There is no registration fee for the conference. Presenting authors (one for each paper) will be provided two nights of accommodation at the Vision Hotel close to Beihang University. Announcement of accepted papers will be made July 29, 2012.

Jun CAI, City University of Hong Kong

Jaime CASASSUS, Universidad Catolica de Chile

Guotai CHI, Dalian University of Technology

Alex FRINO, University of Sydney

Joseph FUNG, Hong Kong Baptist University

Yinhai HUA, Nanjing University of Finance and Economics

Jangkoo KANG, KAIST, Seoul, Korea

Tong Suk KIM, KAIST, Seoul, Korea

Donald LIEN, University of Texas at San Antonio

Peng LIU, Cornell University

Yiuman TSE, University of Texas at San Antonio

Giorgio VALENTE, University of Essex

Changyun WANG, Renmin University of China

Robert WEBB, University of Virginia

Chongfeng WU, Shanghai Jiaotong University

Jian YANG, University of Colorado

Tags - conference , futures , derivative

Should we? I don't think so, the black scholes is just a weapon, it is the person who use it improperly should be blamed instead. This infographic is a simple defense of the Black Scholes model.

Tags - black scholes , crisis , credit

First of all it is important to understand the formula of the Stochastic Oscillator:

Main Stochastic (%K) = 100 * (Closing Price - Lowest Close of Last 5 Bars) / (Highest High of Last 5 Bars - Lowest Close of Last 5 Bars)

Signal Stochastic (%D) = 3-Period Exponential Moving Average of the Main Stochastic

From the formula we can derive that the main stochastic is showing us the relative location of current price in relation to the range of last 5 bars. Low readings indicate that price is near a support level (the lowest point of the range) and high readings indicate that price is near a resistance level (the highest point of the range).

Most traders enter trades when the main stochastic crosses the signal stochastic line - when a cross is from below it is a long signal, and when the cross is from below it is a short signal.

Another trading method is to enter trades when the Stochastic Oscillator crosses the 60 level (long trade), and when it crosses the 40 level (for shotr trade). It is a trend-following approach that works well in stock charts with strong trends.

It is remarkable that an indicator that was developed 60 years ago is still useful and still generates powerful signals to this day, on many stocks and commodities.

One can also improve the formula of the Stochastic to take into account ranges that are shifting: Channels instead of parallel trends. The improved formula would show the location of price in relation to the boundaries of regression channel, giving much more accurate signals that take into account the trend as well, and not just flat high and low.

We highly recommend getting to know this indicator and mastering the trading systems presented here. It can provide very accurate signals, both trend-following and reversal signals, and can provide you with trading edge.

Tags - trading , stochastic , oscillator , average

Spent this weekend searching for opportunities both in UK and China, with emphasis on assistant professor at finance department. The results are really surprising, I heard the salary in UK is low, but never thought it is soooooooooo low, are you kidding me, UK? Except London Business School, other top universities pay extremely low, with a range of 30k GBP to 50k GBP for junior lecturer (equivalent to assistant professor) based on advertisement.

As a comparison, below is a salary list for those top mainland universities in China in GBP (econ for economics department, fin for finance department, all for assistant professor):

Shandong U (econ) 25k

Wuhan U (econ) 26k

Renmin Business School (fin) 40k

Shandong (econ) 20k

THU Shenzhen (fin) 50k

CQTBU (econ) 15k

PKU SOE (econ) 24k

SWUFE (econ) 25k

Renmin Labor and HR (econ) 32k

Fudan SOE (econ) 35k

ZJU (econ/fin) 35k

SHUFE (fin) 35k

THU SEM (econ/fin) 36k

Renmin Hanqing (fin) 39k

PKU Guanghua (econ/fin) 40k

PKU HSBC (econ) 40k

SWUFE (fin) 50k

PKU HSBC (fin) 50k

CEIBS (fin) 65k

SAIF (fin) 68k

CKGSB (econ) 125k

CKGSB (fin) 190k

Many universities in China pay similarly as in UK, I wish this post is an April fools day joke, but it is TRUE. I know we can't just compare salary when choosing a university, but still, are you kidding me, UK?

Please leave a comment if my number isn't correct.

Tags - career , salary , professor , china , uk

In the aftermath of the Credit Crisis it became popular to blame quants and mathematics for the Credit Crisis. In November, 2008, a former French prime minister, Michel Rocard, wrote in

As the dust settled, The Financial Crisis Inquiry Comission Report gave a more thoughtful analysis. They mentioned maths and quants, but only in passing. Their conclusion was that there had been a “systemic breakdown in accountability and ethics”, which had resulted in lax regulation and excessive borrowing.

In one respect the FCIC conclusions are positive for mathematicians, the Crisis wasn’t their fault. On the other hand, if the problems were rooted in ethics, then surely maths has no role in preventing future Crisis. Maths is just another tool, like a spread sheet or double entry bookkeeping. This is pretty depressing for the heirs of Newton, Euler, Riemann, Poincaré and Kolmogorov.

The mathematical study of probability is usually thought to have begun in the mid-sixteenth century, with Cardano’s

Quotation

These facts contribute a great deal to understanding but hardly anything to practical play.^{1}

Cardano’s work was ignored for centuries, the problem was, despite Cardano’s status as a mathematician, his ‘Book on Games of Chance’ didn’t fit in to what modern mathematicians regard as proper mathematics. The fact is that Cardano did not see his work on probability as principally a mathematical work, but as an investigation of the

A more orthodox study of probability was James Bernoulli’s ‘Art of Conjecturing’, however, even the great Bernoulli’s text becomes somewhat incoherent for the modern reader. In the final section Bernoulli considered situations where the sum of probabilities could be greater than one

Quotation

While traditional histories of mathematical probability start with Pierre Fermat, Pascal and Huygens because they give what are from the modern point of view correct frequentist solutions to the problems of division and expectations in games of chance …the foundations of Huygens’s method (…) was not chance (frequentist probability), but rather *sors *(expectation) in so far as it was involved in implicit contracts and the just treatment of partners.^{4}

The historical evidence seems to point to mathematical probability emerging out of the ethical examination of commercial transactions. During the eighteenth century, as science became focussed on the mechanics of physical objects, probability became associated with counting relative frequencies, a physical phenomenon, and its roots in the ethics of exchange were lost.

The ethical approach to probability of Bernoulli, Huygens and Cardano had a long pedigree. The Greek philosopher Aristotle never used mathematics in relation to physics, but he did in the analysis of the justice of exchange in his most famous study of morality, Nicomachean Ethics

Quotation

the just price of things is not fixed with mathematical precision, but depends on a kind of estimate^{6}

and, later,

Quotation

The judgement of the value of a thing in exchange seldom or never can be made except through conjecture or probable opinion, and not so precisely, or as if understood and measured by one invisible point, but rather as a fitting latitude within which the diverse judgements of men will differ in estimation.^{7}

These opinions are revolutionary in the development of western science

Quotation

[it is] foolish to accept probable reasoning from a mathematician and to demand from a rhetorician scientific proofs.^{9}

By exploring the ethics of exchange through mathematics, these medieval scholars cleared the path for physicists to start using probability and statistics.

This was the background to Cardano’s Book on Chance, and it is captured when he says

Quotation

The most fundamental principle of all in gambling is simply equal conditions, e.g., of opponents, of bystanders, of money, of situation, of the dice box, and of the die itself. To the extent to which you depart from that equality, if it is in your opponent’s favour, you are a fool, and if in your own, you are unjust.^{10}

Cardano’s point, which goes back to Aristotle, is that a stake should equal the expected winnings.

This explains Bernoulli’s probabilities that did not add up to one, he was defining a probability as a set of factors that made the expected winnings equal to the stake. These types of situations are common in modern commercial gambling, where the sum of the odds offered to a gambler provide the bookkeeper with a certain profit, what would be call an arbitrage in finance.

Today Financial Mathematics is built on the Fundamental Theorem of Asset Pricing, a mathematical theorem that emerged in the late 1970s out of the Black-Scholes equation. The first statement of the Theorem is

Quotation

A market is arbitrage free if and only if a martingale measure exists.

Quotation

Fairness is based on equality.

The association between mathematics and morality had all but disappeared in 1812 when Laplace published his ‘Analytic Probability Theory’ and gave an argument as to why mathematical (frequentist) expectation was a better guide than the moral expectation of Cardano and Bernoulli. About the same time, the English philosopher Jeremy Bentham introduced the concept of ‘utility’ into political economy from mathematics, and then, in 1836, the philosopher John Stuart Mill argued that economics

Quotation

is concerned with [man] solely as a being who desires to possess wealth, and who is capable of judging the comparative efficacy of means for obtaining that end.^{11}

Not all economists bought into ‘Max U’, some were less inspired by economic theory, what people ought to do, and more by practice, what people actually do. In particular an experiment blew ‘Max U’ out of the water, the ‘Ultimatum Game’. The game is based on an experimenter, two participants and a sum of money. The experimenter gives all the money to the first player, who proposes how to share the money with the second participant. The division is made if the second participant accepts the split, but neither player gets anything if the first player’s proposal is rejected.

According to Max U, the second player should accept any split of the pot, they are getting something for nothing. However, the results of the experiments on adults are that if the money is not split equally, or close to, then the second player rejects the offer. Research has shown that chimpanzees are rational maximisers while the willingness of the second player to accept an offer is dependent on age or culture. Older people from societies where trade and exchange plays a significant role are more likely to demand a fairer split of the pot than young children or adults from isolated communities.

Maximising utility, the main method of academic economics, is a selfish, greedy approach to making financial decisions. When quants price derivatives using no-arbitrage arguments they are using a method that places fairness at the heart of the markets. Mathematics does have a role in maintaining ethics in the markets.

1 David [1962(1998)], p 58], quoting from Chapter 9 of the

2 Bellhouse [2005]

3 Sylla [2006, p 27]

4 Sylla [2006, p 28]

5 Aristotle [1999, Book V]

6 Aquinas [1947, Second part of the second part, Q77, 1]

7 Kaye [1998, p 124]

8 Hadden [1994], Crosby [1997], Kaye [1998]

9 Aristotle [1999, Book 1, 3]

10 Bellhouse [2005] quoting from Chapter 6 of the Liber

11 Persky [1995, quoting Mill, p 223]

12 Murnighan and Saxon [1998], Henrich et al. [2006], Jensen et al. [2007]

Thomas Aquinas. Summa Theologica. Benziger Bros, 1947.

Aristotle. Nicomachean Ethics, translated by W. D. Ross. Batoche, 1999.

D. Bellhouse. Decoding Cardano’s Liber de Ludo Aleae. Historia Mathematica, 32:180–202, 2005.

A. W. Crosby. The Measure of Reality. Cambridge University Press, 1997.

F.N. David. Games, Gods and Gambling, A history of Probability and Statistical Ideas. Charles Griffin & Co (Dover), 1962(1998).

R. W. Hadden. On the Shoulders of Merchants: Exchange and the Mathematical Conception of Nature in Early Modern Europe. State University of New York Press, 1994.

J. Henrich et al. Costly punishment across human societies. Science, 312:1767–1770, 2006.

K. Jensen, J. Call, and M. Tomasello. Chimpanzees are rational maximizers in an ultimatum game. Science, 318:107–108, 2007.

J. Kaye. Economy and Nature in the Fourteenth Century. Cambridge University Press, 1998.

J. K. Murnighan and M. S. Saxon. Ultimatum bargaining by children and adults. Journal of Economic Psychology, 19:415–445, 1998.

J. Persky. Retrospectives: The ethology of Homo economicus. The Journal of Economic Perspectives, 9(2):221–231, 1995. E. D. Sylla. Commercial arithmetic, theology and the intellectual foundations of Jacob Bernoulli’s Art of Conjecturing. In G. Poitras, editor, Pioneers of Financial Economics: contributions prior to Irving Fisher, pages 11–45. Edward Elgar, 2006.

Tags - mathematics , crisis , quant

Guest posted by Caxton FX: a foreign exchange company that sets itself apart by offering excellent value for money and great customer service.

Tags - trading , quant

Forgive me if I didn't reply individually, the short answer is: YES, you can, but subject to the

1, the content of the article must be informative, quantitative oriented, relevant to quantitative finance in general, specifically, any article about quantitative trading, investment news and ideas, quantitative risk analysis, derivative pricing code and software, etc., is highly welcomed. Here are a few examples:

http://www.mathfinance.cn/value-at-risk/

http://www.mathfinance.cn/sudoku-spreadsheet-example-matlab-excel-link/

http://www.mathfinance.cn/valuation-of-stock-option-with-discrete-dividend/;

2, the article must be unique and writen only for Quantitative finance collector blog, rather than a copy from other sites;

3, the site linked to must be healthy, no gambling & porn & loan & mortgage are accepted;

4, the article should be above 300 words (unless it is infographics).

1, as a sign of gratitude, we will leave maximum two links back to your site in the post, which will increase the exposure and traffic of your site;

2, the link is do-follow, which means the link will be better recoganized by search engines;

3, the blog has around 1000 unique visitors per day, by writing an article and leaving your contact information here, you are more likely to be recoganized;

4, more opinions are always good for both of our readers.

Blog on Quantitative finance code, methods in math finance focusing on derivative pricing, quantitative trading and quantitative risk management. Several features:

1, one of the few mainly quant oriented blogs;

2, received on average 30,000+ unique visitors and 50,000+ pageviews per month;

3, visitors are mostly from US, UK, Canada, France, and Germany.

simply send your article to abiao @ mathfinance.cn (remove space). Posting an article is totally free as we believe it will be a win-win strategy.

Tags - blog

Via: Point of sale software

Tags - tax

Besides Quant Q&A, a facebook fan page was created to allow facebook users to track and discuss the latest posts. A facebook box was also added to the right sidebar of each page on the whole blog.

Hopefully these changes facilitate us to interact and discuss more efficiently, if you feel the same way, start now by either asking a question or liking us on facebook.

Tags - blog , facebook , faq

Sydney is an interesting city: it has less Chinese than I was told, I saw more British faces there than in London; people have a leisure life, bus drivers chat through window when waiting for traffic lights, which is seldom seen in UK; we can't buy beer and other alcohol easily other than in pub (my friend told me there are usually stores selling beer besides a supermarket, but I didn't find any), in contrary, buying beer is convenient in UK, quite a few small stores in a single block open till very late; the living expense is rather high, a bottle of beer is 1.5 time more expensive than that in UK after currency adjustment. As listed here, Sydney is ranked the 14th most expensive city in the world, while London is the 18th.

Tags - sydney

1, my supervisor Prof. David Newton for supporting my research and co-authoring a submitted paper.

2, my colleagues & co-authors: Fangyi Jin, Qian Han, Doojin Ryu, and Songtao Wang for your consistent help and encouragement.

3, my blog readers for not giving up reading my posts. I have to admit that the number of posts I have written in 2011 is much less than that of last year, due to the increasing workload of my PhD research. 2012 is a more challenging year as I will graduate by Sep, 2012, I expect my PhD thesis and job hunting will occupy most of time. Hope you keep staying tuned, I will try to write whenever I can.

4, Kai dai, Joanne, Ting Qiu for your kindness to invite me to dozens of dinners, I suddenly realize I had less than 5 dinners at my home in the last month, the left were cooked by you guys.

5, ...

Tags - thanksgiving

Quotation

The Australasian Finance and Banking Conference, organised by the Institute of Global Finance and School of Banking & Finance at the Australian School of Business at UNSW, will converge in Sydney in December 2011. This conference provides international academics and industry with the opportunity to meet and share their research and interest in finance related fields. The conference would like to invite all academics and practitioners to participate. The conference is the most prestigious finance conference in the Asia-Pacific region, and brings together the world's foremost leaders of thought from the financial community.

http://www.asb.unsw.edu.au/schools/bankingandfinance/newsandevents/afbc/Pages/24thaustralasianfinanceandbankingconference.aspx

Tags - conference

Quotation

The 2011 Quantnet ranking is the most comprehensive ranking to date of master programs in Financial Engineering (MFE), Mathematical Finance in North America. Quantnet surveyed program administrators, hiring managers to get the information used in the 2011 ranking.

Surprisingly or not, the top 5 MFE programs are:

1 Carnegie Mellon University

2 Princeton University

3 Columbia University

4 New York University

5 Baruch College, City University of New York

Tags - ranking , mfe , financial-engineering

For more detail about submission rule, how to submit, etc., please visit the following pages:

http://www.mebanefaber.com/2011/09/09/investment-paper-competition-10000/

http://www.naaim.org/

http://www.naaim.org/files/2012_callforpapers_all.pdf

Tags - competition , paper , award

Adam Hewison wrote a guest post about Marketclub reviews before, as a follow-up of that, he starts a special offer and shares here for anyone interested.

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Tags - marketclub , offer , trading , trend

Silent Salute!

Below is the email by Prof. Freddy Delbaen.

Quotation

Dear All,

Last week I received the sad news that Dave Heath passed away. Dave was one of the four "gang members" who started risk measures (around 1993). His contribution to the development of this field cannot be underestimated. Dave was also the mathematical pillar of the Heath-Jarrow-Morton models for interest rates, by now the standard in interest rate modelling.

As a close collaborator he visited ETH many times and some of you certainly met him during these visits. They will remember him as a sharp, logic, independently thinking mathematician with a lot of common sense.

Some 6 years ago, Dave had to stop academic activities. He started to have memory problems and the diagnosis was Alzheimer. In November 2010, Artzner, Eber, Heath, Ku and myself got the David Garrick Halmstad prize for the best paper in actuarial sciences. Dave was happy to get the prize. However his condition deteriorated quickly and since January he was in a specialised hospital. Last week he had an accident and a couple of days later he passed away.

For those who knew him it represents a great loss.

Freddy Delbaen

Last week I received the sad news that Dave Heath passed away. Dave was one of the four "gang members" who started risk measures (around 1993). His contribution to the development of this field cannot be underestimated. Dave was also the mathematical pillar of the Heath-Jarrow-Morton models for interest rates, by now the standard in interest rate modelling.

As a close collaborator he visited ETH many times and some of you certainly met him during these visits. They will remember him as a sharp, logic, independently thinking mathematician with a lot of common sense.

Some 6 years ago, Dave had to stop academic activities. He started to have memory problems and the diagnosis was Alzheimer. In November 2010, Artzner, Eber, Heath, Ku and myself got the David Garrick Halmstad prize for the best paper in actuarial sciences. Dave was happy to get the prize. However his condition deteriorated quickly and since January he was in a specialised hospital. Last week he had an accident and a couple of days later he passed away.

For those who knew him it represents a great loss.

Freddy Delbaen

Tags - risk

Quotation

We address the empirical implementation of the static asset allocation problem by developing a forwardlooking approach that uses information from market option prices. To this end, we extract constant maturity S&P 500 implied distributions and transform them to the corresponding risk-adjusted ones. Then we form optimal portfolios consisting of a risky and a risk-free asset and evaluate their out-of-sample performance. We find that the use of risk-adjusted implied distributions times the market and makes the investor better off than if she uses historical returns’ distributions to calculate her optimal strategy. The results hold under a number of evaluation metrics and utility functions and carry through even when transaction costs are taken into account.

Not surprisingly, the reported market timing ability deteriorated during the recent subprime crisis. An extension of the approach to a dynamic asset allocation setting is also presented.

Not surprisingly, the reported market timing ability deteriorated during the recent subprime crisis. An extension of the approach to a dynamic asset allocation setting is also presented.

Quotation

The U.S. government’s failure to provide oversight and prudent regulation of the financial markets, together with excessive risk taking by some financial institutions, pushed the world financial system to the brink of systemic failure in 2008. As a consequence of this near catastrophe, both regulators and investors have become keenly interested in developing tools for monitoring systemic risk. But this is easier said than done. Securitization, private transacting, and “flexible” accounting prevent us from directly observing the many explicit linkages of financial institutions. As an alternative, we introduce a measure of implied systemic risk called the absorption ratio, which equals the fraction of the total variance of a set of asset returns explained or “absorbed” by a fixed number of eigenvectors. The absorption ratio captures the extent to which markets are unified or tightly coupled. When markets are tightly coupled, they become more fragile in the sense that negative shocks propagate more quickly and broadly than when markets are loosely linked.

Quotation

William Poundstone's (2005) book, Fortune's Formula, brought the Kelly capital growth criterion to the attention of investors. But how do full Kelly and fractional Kelly strategies that blend with cash actually preform in practice? To investigate this we revisit three simple investment situations and simulate the behavior of these strategies over medium term horizons using a large number of scenarios.

Tags - paper

While the ancient Greek civilization is considered the founder of the main principle of mathematics, archaeologists found proofs that Egyptians also developed quite an advanced decimal system. This is the earliest system that allowed indefinite counting through adding new symbols. The Egyptian hieroglyphs reveal that the system is in evidence since around 3000 BC. This innovative model influenced the Minoans’ own decimal system, a Bronze Age civilization that lived on island of Crete.

While de Egyptians early mathematicians were focused on the decimal system, the Mesopotamian scientists developed a functional weighting and measuring system sometime around 4000 BC. Sexagesimal schemes (a numeral system that has 60 as its base) were used to count slaves, animals, fish, dead animals, certain types of beer and milk products. Other innovative patterns were created to count field measurement, wheat, malt, milk and beer measurement.

Source: https://content.ncetm.org.uk/images/microsites/primary_magazine/issue_4/egyptian_2.jpg

Pythagoras of Samos was an Ionian Greek philosopher and mathematician that among other, founded a religious movement called Pythagoreanism. He lived between 570 – 495 BC, a period when he founded the most famous ancient school of mathematics. The Pythagoreans thought that mathematics is not just an advanced subject, but the base on which relies the principles of all the surrounding things. Pythagoras has commonly been given credit for discovering a great geometrical theorem that states that in a right-angled triangle area, the area of the square on the hypotenuse is equal to the areas of the squares of the other sides. Due to the secrecy that surrounded the Pythagorean School, there is no evidence that Pythagoras itself has worked on this theorem.

This theorem however, pushed Hippasus, one of the Pythagorean students, to discover the existence of irrational numbers. When trying to represent the square root of 2 as a fraction, using geometry, he proved that one cannot write the square root of 2 as a fraction, therefore this was irrational. His finding could not be accepted by his fellow Pythagoreans, therefore he was ultimately thrown overboard and drowned.

Source: http://upload.wikimedia.org/wikipedia/commons/thumb/d/d2/Pythagorean.svg/250px-Pythagorean.svg.png

Although the recordings claim that Heron of Alexandria (an ancient Greek mathematician and engineer that lived in the famous Egyptian city) was the first to mention the existence of negative numbers, there are no actual findings that his work was however related to this concept. Brahmagupta was the first scientist ever to have developed advanced rules of dealing with the negative numbers. He was an Indian astronomer and mathematician that lived between 598 – 668 CE. His main work is

And the most interesting thing of all is that the book was completely written in verse, making it not only a milestone writing in mathematics, but also a wonderful piece of literature.

Source: http://upload.wikimedia.org/wikipedia/commons/0/09/Number-line.gif

These are the ten digits every child is learning today and everyone is using day by day, in the vast majority of the world. The Arabic numerals, or the Hindu-Arabic numerals were developed by Indian mathematicians and their main feature is that a sequence of numbers such as “123” is read as a whole number. Adopted by the Islamic mathematicians, they passed to the Arabs in west, which transmitted them to Europe, in the Middle Ages. The Europeans spread them in the world, throughout trading, books and colonialism.

The digits 1 to 9 evolved from the Brahmi numerals, and Indian numeral system developed in the 3rd century BCE. The first universally accepted inscription that contains the use of the 0 glyph dates back from the 9th century and it was discovered at Gwalior, in Central India. Around the year 1000, Gerbert of Aurillac (later known as Pope Sylvester II) used his position to spread the knowledge of numerals in Europe. Still, the most active early promoter of the Hindu-Arabic numerals was Fibonacci, a mathematician born in the Republic of Pisa that eventually became famous for the Fibonacci sequence.

Source: http://upload.wikimedia.org/wikipedia/commons/5/58/Bakhshali_numerals_2.jpg

Nicole Oresme was one of the greatest philosophers in the late Middle Ages. His published writings included influential works on economics, mathematics, physics, astronomy, philosophy and theology. Although his profile was not mathematic by default, he is considered the father of the modern symbols for subtraction (“-“) and addition (“+”), used first sometime around 1360. These, along with other significant discoveries in mathematics are contained in

Almost two centuries later, the modern equals sign (“=”) is mentioned for the first time in

More than half of century will have to pass until the first use of the multiplication sign (“x”). This happened in 1618, and the main “responsible” for this innovation was William Oughtred, an English mathematician. Moreover, this early genius in mathematics introduced for the first time the abbreviations “sin” and “cos” for the sine and cosine functions.

Finally, the modern division symbol (“÷”) was introduced by Johann Rahn, a Swiss mathematician. The sign firstly appeared in

Source: http://www.mrs-brunell.org/images/Math%20icons/math_symbol_clipart.jpg

In the 16th-17th century, England had numerous illuminated minds in the field of mathematics, their work being acknowledged as a great contribution to the progress in mathematics. John Wallis was one of the great mathematicians that lived in that period and who was given a partial credit for the infinitesimal calculus. On the other hand, he is fully credited with introducing the symbol for infinity, in 1655: “”.

Although the letter “π” (

Leonhard Euler was a pioneering Swiss mathematician and physicist renowned for its exquisite work in infinite calculus, graph theory and mathematical analysis. He lived most of his life in St. Petersburg (Russia) and Berlin (Prussia), where he managed to print all his contributions that would eventually occupy somewhere between 60 and 80 quarto volumes. Two mathematical notations were introduced and popularized through his work – the letter e, for the base of the natural logarithm and the letter i to denote the imaginary unit. Although Jones introduced the usage of the letter “π”, Leonhard Euler was the one that made it popular amongst the mathematicians at that time.

Source: http://rlv.zcache.com/the_first_thousand_digits_of_pi_looks_infinite_poster-p228230223011912582t5ta_400.jpg

This type of geometry is a non-Euclidean geometry, which infirm the parallel postulate of the Euclidean geometry that states the fact that two parallel lines never intersect. In the hyperbolic geometry, there are an infinite number of lines parallel to a given line.

Developed by Nikolai Lobachevsky (a Russian mathematician) and Janos Bolyai (a Hungarian mathematician that lived in Transylvania), the hyperbolic geometry has no precise analogue of the Euclidean parallel lines and its main characteristic is the fact that the angles of a triangle add to less than a straight angle. The development of this kind of geometry led to a series of discoveries in physics and many other mathematical related domains.

Source: http://www.btinternet.com/~connectionsinspace/ESCHERT1.jpg

The general theory of relativity is the geometric theory of gravitation published by Albert Einstein in 1916. It currently serves as a description of gravitation in the modern field of physics. Unlike the hyperbolic geometry (which refutes some of the basic principles of “classical” geometry) , the general relativity generalizes the special relativity findings before and Newton’s universal law of gravitation and provides gravity as a geometric property of space, time or space-time.

General relativity changes the way classical physics are perceived – especially the passing of time, the geometry of space, the motion of bodies in free fall and the propagation of light. It is also the simplest theory that is consistent with experimental data.

The general theory of relativity therefore implies the existence of black holes – regions in space where light and time are distorted in a way that nothing can escape. In addition, general relativity is a basis for the cosmological models that are responsible for the continuous expanding universe.

Source: http://upload.wikimedia.org/wikipedia/commons/c/cd/Black_Hole_Milkyway.jpg

Tags - math , discovery , world

Quotation

Dear Dr. Biao Guo, Dr. Qian Han and Dr. Doojin Rhu,

I am pleased to notify that the review committee has decided to accept your paper, “**Nonparametric Tests for the Martingale Restriction: A New Approach**” for the presentation at the 2011 Asia-Pacific Association of Derivatives (APAD) on August 25th and 26th.

APAD, whose inaugural conference was held in 2004, is an organization comprising academics, practitioners as well as regulators operating in the derivative markets in the Asia-Pacific region. The main objective of this association is to promote research on, and increase knowledge of, the use of derivative securities and markets. Fully supported by the Korea Exchange (KRX) and with the help of the other participating exchanges in the Asia-Pacific region, the APAD has alternated the conference venue between Busan, Korea and other places in the Asia-Pacific region such as Bangalore and Gurgaon, India in the past.

Free accommodation for the nights of August 24th and 25th and free meals will be provided for paper presenters under the auspices of the Korea Derivative Association and the Korea Exchange. You can stay at Grand Hotel in Busan, Korea (http://www.grandhotel.co.kr/english/default.aspx), where the conference will be held. The hotel is located in the Haeundae Beach, which is known as the most beautiful beach in Korea.

Selected peer reviewed papers from the 8th annual APAD conference will appear in a special issue of the**Journal of Futures Markets** in August 2012. One best paper award of US $2,000 and two honorable mentions of US $1,000 respectively will be presented at the conference.

More information will be provided at the conference website at http://www.kafo.or.kr/, I am looking forward to seeing you at the conference in Busan, Korea.

I am pleased to notify that the review committee has decided to accept your paper, “

APAD, whose inaugural conference was held in 2004, is an organization comprising academics, practitioners as well as regulators operating in the derivative markets in the Asia-Pacific region. The main objective of this association is to promote research on, and increase knowledge of, the use of derivative securities and markets. Fully supported by the Korea Exchange (KRX) and with the help of the other participating exchanges in the Asia-Pacific region, the APAD has alternated the conference venue between Busan, Korea and other places in the Asia-Pacific region such as Bangalore and Gurgaon, India in the past.

Free accommodation for the nights of August 24th and 25th and free meals will be provided for paper presenters under the auspices of the Korea Derivative Association and the Korea Exchange. You can stay at Grand Hotel in Busan, Korea (http://www.grandhotel.co.kr/english/default.aspx), where the conference will be held. The hotel is located in the Haeundae Beach, which is known as the most beautiful beach in Korea.

Selected peer reviewed papers from the 8th annual APAD conference will appear in a special issue of the

More information will be provided at the conference website at http://www.kafo.or.kr/, I am looking forward to seeing you at the conference in Busan, Korea.

Tags - conference , derivative , korea

Since I can't get access to OptionMetrics database, I plot a graph showing the relation between average daily 5-year CDS downloaded from CMA, Datastream and simple average historical volatility measured by exponentially weighted moving average (EWMA) of 355 US entities, how amazingly close is the co-movement of these two series.

Reference:

Zhong, Z. D., C. Cao, et al. (2010). "The information content of option-implied volatility for credit default swap valuation." Journal of Financial Markets 13(3): 321-343.

Tags - cds , volatility

http://www.uiowa.edu/ifdebook/timeline/Financial_Crisis_Timeline.pdf

Tags - crisis

China has experienced many reported and unreported riots over the cost of food, which is increasing at an alarming rate. The government is working very hard at lowering food cost, and keeping inflation at a manageable rate. However, many experts in this field think they are fighting an uphill battle, if not a losing one all together.

If the government is not able to get this under control very soon, this could be quite bad news for Wall Street. Quite a few of the world’s largest manufactures, like General Electric, Ford, Toyota, General Motors, and Nissan have invested billions upon billions of dollars in China, because of their low cost manufacturing capacity.

If these companies are forced to relocate their facilities, or shut them down completely, their financial statements will need to incur quite substantial losses because of this. This of course will be eventually reflected in their stock prices, which will only drag Wall Street down even further.

Already we are seeing some company’s relocate their factories from the coastal towns, to the inner parts of the country where wage prices are lower, and provide more stability. This increases the price of the final product over their initial projections, due to increased shipping cost of raw materials, as well as the completed item.

Other companies that have not relocated to the inner parts of the country have been forced to increase their wages considerably, sometimes having to double them in only a single year. Some US based companies that were planning on relocating their manufacturing facilities to China because of the low cost production capabilities, have changed their plans completely, and have maintained them in the US.

How this is all going to play out on Wall Street over the next few years is still up in the air. But, there are a few things that are certain. First, the worldwide consumer will have to pay more for goods that are coming out of China. Second, the multinationals manufacturers that are based there will never receive the full price benefits that initially expected when they made their decision to relocate there.

Tags - china , inflation , wall-street

Because of this, Wall Street moved lower last week, although NASDAQ stayed close to its 10 year high. Other information that came in suggesting this trend will continue is an unexpected rise in unemployment benefits to their highest levels since January.

One influential market analysis believes that as more data becomes available about the economy over the next few weeks, it will provide the figures required to determine if this will be a trend, or just a temporary slowdown for Wall Street.

Food prices have also increased sharply lately, which is leading to anxiety over inflation also following suit. Growth in the US economy has now slowed to 1.8%, as compared to the 2% which was forecasted.

The Feds chairman, Alan Greenspan held his first news conference and announced that he expected interest rates to stay low until June, which helped NASDAQ continue its momentum. Procter & Gamble Co (PG.N) stated that is was lowering its earnings forecast due to higher raw material cost, which were eating away at its bottom line.

Another announcement by Starbucks Corp (SBUX.O) also put a shiver into investors, when it stated that its profits would also be down due to higher than expected cost. Because of this, its shares fell 1% in trading for the day.

It is all too early to tell where this information is going to lead Wall Street in the near future. But, with the ever spreading tension in the Middle East, there does not seem like there will be a drop in oil prices anytime in the near future.

Tags - gdp

Tags - blog , trading

Have a nice Sunday everyone.

Tags - blog

The detail of this contest can be found at QuantCup, as the summary says, you are supposed to implement a price-time priority limit order matching engine responsible for determining when buy and sell orders transact. A starter code in C language can be also downloaded at the website.

Register at QuantCup if you are interested.

Tags - contest

Well, it is indeed quite easy if you hear of RSS, RSS is a family of web feed formats used to publish frequently updated works—such as blog entries, news headlines, audio, and video—in a standardized format, it benefits readers who want to subscribe to timely updates from favored websites or to aggregate feeds from many sites into one place. Therefore what we need to do is to subscribe the RSS of the latest issue of those journals we are interested with RSS reader, for instance, Google reader, whenever there is any update (new volume issued in our case) we will be informed.

Most journals have their own websites and provide RSS links for subscription, and one good site i personal use is ingentaconnect, it lists many popular journals and feeds. Taking finance field as an example:

Below are the RSS links of latest issue for those top finance journals:

Journal of Finance: http://api.ingentaconnect.com/content/bpl/jofi/latest?format=rss;

Journal of Financial Economics: http://api.ingentaconnect.com/content/els/0304405x/latest?format=rss;

Review of Financial Studies: http://api.ingentaconnect.com/content/oup/revfin/latest?format=rss

Journal of Banking and Finance: http://api.ingentaconnect.com/content/els/03784266/latest?format=rss

In case you haven't subscribed the RSS of my blog yet, here is the link http://feeds.feedburner.com/QuantitativeFinanceCodeIndex, or subscribe with your email address at the top right sidebar of this page if you prefer to have the latest post sent to your email box.

Innovation makes our life easier :)

Tags - rss , journal , blog

Here is a good opportunity to research and receive awards I got to know during the conference, The Institute for Financial Markets (IFM), a nonprofit educational foundation and an independent affiliate of the Futures Industry Association, calls for paper for 2011, individual research studies will be subjected to a peer-review process and published in a special edition of the Review of Futures Markets,

1. A closer look at self-regulation

a. What are the pros/cons of self regulation?

b. What are the implications and/or threats to self regulation after Dodd-Frank?

c. Should SROs assume more regulatory responsibility?

2. Compare/contrast regulatory environments in Europe, US/North America, Asia

a. Does regulatory burden impact market share?

b. Do speculative limits shift market participation?

c. Would a U.S. transaction tax (or speculator tax) move markets abroad?

d. What are the effects of fragmented regulation?

e. Principle- vs. rules-based regulation?

3. Capital requirements

a. How does Dodd-Frank impact the firm’s cost of capital?

b. Compare and contrast Dodd-Frank vs. Basel III, and non-cleared swaps?

4. Effects of margin levels

a. Are initial margin levels (% of notional) correlated with volatility levels?

b. Compare/contrast arbitrageable exchange contracts margin levels: Does it drive business to other markets?

c. What is the impact of customer margin requirements and guaranty funds under various segregation models?

5. Clearinghouse risks

a. Compare the advantages/disadvantages of SPAN with VAR risk models?

b. Could a reduction of clearing members concentrate risk?

6. Dodd-Frank: Unintended consequences

a. If Dodd-Frank adds to both firm and end-user costs, at what point might the endusers conclude the cost of hedging has become too high?

b. Will some firms retrench from the business as the regulatory burden grows?

c. What are the expected economic costs to the member firms for implementing each of the new rules from Dodd-Frank?

d. How would a diminished number of member firms impact end-user cost?

e. SEFs: Does too much competition fracture the markets?

f. Examine the incremental cost of implementing Sarbanes-Oxley (2002), as compared to the cost of implementing Dodd-Frank. Are there unintended consequences that are indeed foreseeable?

Interested readers shall check in detail at http://theifm.com/education/IFM_Call_Papers_Grants_2011.pdf

Tags - paper , conference

Tags - quant

16th, Feb

9:00 a.m. - 9:45 a.m. The Information Content of the S&P 500 Index and VIX Options on the Dynamics of the S&P 500 Index

9:45 a.m. - 10:30 a.m. Regime Dependent Information Contents of Model-free Volatility: Evidence from the Eurodollar Options Markets

10:50 a.m. - 11:35 a.m. The Impact of Liquidity on Option Prices

11:35 a.m. -12:20 p.m. Intraday Price Formation and Bid-Ask Spread Components: A New Approach Using a Cross-Market Model

2:15 p.m. -3:00 p.m. Liquidity Withdrawal and the "Flash Crash" on May 6, 2010

3:00 p.m. -3:45 p.m. Futures Market Adjustment to Public Information: Evidence from the Global Financial Crisis

4:00 p.m. - 4:45 p.m. Time Varying Optimal Currency Hedging and the Preference for Skewness

4:45 p.m. - 5:30 p.m. The Performance of Alternative Futures Buy-Write Strategies

17th, Feb

9:00 am to 9:25 am. The Roles of Speculation and Fundamentals in Commodity Markets: The Case of U.S. Natural Gas Futures Market

9:45 am to 10:10 am A Comprehensive Study of the Chinese Warrants Bubble

10:50 am to 11:15 am Pricing Convertible Bonds with Embedded Parisian Options: Theory and Evidence

11:35-12 noon Alchemy in the 21st Century: Hedging with Gold Futures

12:20 a.m. - 12:45 p.m. “Is there an Opportunity to Improve the Hedging of Jet Fuels by Airlines?”

Tags - paper , conference

Thanks to CBOT, the presenting author of each paper accepted for presentation at the symposium receives a $1,500 grant for travel expenses related to attending the symposium or for other research needs. Plus the presenting author receives two days of complimentary accommodations at the conference hotel. I may not attend it while my coauthor may do as he is based in China closer to Singapore. Whatever, it is a rare opportunity to have my first working paper out, the presented papers have chance to be published in either Review of Futures Markets or Journal of Futures Markets, we will cherish it.

Abstract of the paper:

Quotation

We propose and empirically investigate a two-factor pricing model for convertible bonds with embedded Parisian options (soft call protection) and stochastic interest rate. The model is solved numerically by a finite element method. Studying the 49 convertible bonds and 47 months of weekly market prices in China, we find that there is no significant mispricing on average, i.e. the market prices are almost equal to our model prices. Ignoring the embedded Parisian options, however, will dramatically decrease the model prices such that the market prices are overpriced by 5.61%. Our result shows that the Parisian options have a significant effect on pricing convertible bonds in the markets where soft call protection is prevailing.

Tags - paper , research , convertible bond

Read the paper "Twitter mood predicts the stock market" @ http://arxiv.org/abs/1010.3003, where the author find an accuracy of 87.6% in predicting the daily up and down changes in the closing values of the Dow Jones Industrial Average and a reduction of the Mean Average Percentage Error by more than 6% by the inclusion of specific public twitter mood dimensions.

Interesting...

Tags - twitter , prediction

To be honest, there aren't many well established

Ok, the NO.1 forum is Wilmott.com, with a large members from both industry and academia, managed by Dr. Paul Wilmott, author of several best selling quantitative finance books, read Wilmott's books;

The other three forums I personally visit are Quantnet, started by a few Baruch MFE students and becomes popular nowdays for both students and practitioners; Global derivatives, used to be popular among MFE applicants; Nuclear Phynance, most members are traders, be careful to ask questions as the culture is kind of weird there (my personal opinion).

There are a few other quantitative finance forums I seldom read such as www.quantitativefinanceforum.com, quantitative finance book forum by Prof. Mark Joshi, I bet you heard of his advice for wannabe quants (strongly recommend you to read it if not).

In terms of Chinese

Enjoy discussing.

Biao

Tags - quant , forum

1, testing the performance of 3 days in a row trading strategy with & without commission in R, http://www.investuotojas.eu/?p=409;

2, writing nicer R codes with Notepad++ and NppToR, http://robjhyndman.com/researchtips/npptor/;

3, Auto-completion in Notepad++ for R Script, http://yihui.name/en/2010/08/auto-completion-in-notepad-for-r-script/;

4, including trading cost, slippage and bid/ask spread cost into your trading strategy backtesting performance by R Blotter package, http://www.investuotojas.eu/?p=365.

Keep warm.

Tags - blog

1, again, my supervisor Prof. David Newton, for rather willing to accept my PhD topics and always supporting me. I am not saying this for him to read, as he doesn't know my blog address :)

2, Jörg Behrens, the partner of Fintegral consulting firm, for giving me the summer internship opportunity in London, and several other colleagues @ Fintegral for your assistance & cooperation during project. It was a great time and memorable;

3, several bloggers I know or don't know, for adding my blog address to your blogs, and spreading words about my blog;

3, advertisers, especially to InvestingChannel, for advertising on my blog, which gets rid of my worry to pay blog server hosting fee;

4, all readers of my blog for your attention, I am pleased to note the total number of visitors increases 74.51% from last year.

Tags - thanksgiving

This is the best backup tool I have ever used, it allows you to sync your files in a pre-specified folder almost instantly, any change of file will be synced automatically. It is free, fast, and even better, you can install it in a computer without administrative privilege, such as the computer in your office. So I simply store all my recent files into the folder, and the first thing is to run dropbox every morning in the office, open dropbox at my own computer after back home in the evening, all changes I made that day are automatically updated on both computers.

Every user can get 2GB FREE space after sign-up, you can get extra space free by inviting your friends, for every friend who joins Dropbox,

You should try Carbonite if you are unsatisfied with the limited space of Dropbox (indeed you can increase storage space by paying Dropbox), two important reasons I like Carbonite are:

Carbonite costs about $50 per year for unlimited space, which is definitely worthwhile considering the suffering of data missing.

To be honest, I use evernote the least frequently, Evernote is another awesome FREE service "remembering everything". Like dropbox and carbonite, it is an online storage system but only for documents, the advantage of Evernote is it allows users to tag the documents and search conveniently later, therefore it is perfect for those people with a huge amount of documents to organize.

Did I mention all of these three tools have iphone / gphone app so basically you can get access to your data nearly wherever you are?

Tags - data

Tags - blog

Quotation

This paper provides empirical evidence that managers adjust firm advertising expenditures to influence investor behavior and short-term stock prices. First, this paper shows that increased advertising spending is associated with individual investor buying and a contemporaneous rise in abnormal stock returns, which is then reversed in subsequent years. Second, there is a significant rise in firm advertising expenditures prior to insider sales and seasoned equity offerings. This large increase is followed by a significant decrease in advertising expenditures in the subsequent year. This pattern of advertising expenditures is consistent with the idea that managers are exploiting the return effect induced by advertising to the benefit of the existing shareholders and/or themselves.

More importantly to retail investors, the paper shows the stock return of those firms with increasing advertising expentiture is higher than those without. Read yourself at http://personal.lse.ac.uk/loud/advertising.pdf

Tags - stock , strategy

I am a big fan of diversification, but after you read this new report that I just finished writing, the perception that diversification always lowers risk will change forever. In fact, nothing could be further from the truth in this case. In order to understand why I have come to this conclusion that is contrary to popular belief, download this report today. In this 10 page PDF document, you will learn the truth about why diversification doesn't work.

All you have to do is to complete the short form and you will be sent an e-mail giving you immediate access.

Tags - diversification

If you are interested in the finding report regarding the market events of May 6, 2010, here is the one http://sec.gov/news/studies/2010/marketevents-report.pdf

Tags - flash-order , crash

Quotation

during any interval of time (day, month, year) the idiosyncratic term of the portfolio during this period is the weighted average of the idiosyncratic terms of the individual securities;

-however, the variance of the idiosyncratic term is not the weighted sum of the securities’ idiosyncratic variances: It is less than that!

Since the securities’ idiosyncratic terms are uncorrelated, they tend to diversify: With a high probability some will do well when others do poorly.

With a sufficiently large, well-diversified portfolio the variance of the portfolio’s idiosyncratic term is negligible.

For example, suppose that all securities in a portfolio have the same alpha: then the portfolio will have that alpha. Also suppose that each security has the same beta: then the portfolio will have the same beta as each of its securities. But if the variances of the idiosyncratic terms of the securities are the same, the variance of the idiosyncratic term for the portfolio will not be the same: It will be smaller than that of each of its securities. The idiosyncratic risks diversify away. The systematic risk (due to beta times the market) does not diversify away.

Generally, asset classes moved roughly in proportion to their historical betas.

At any time we should make our best estimates for “the next spin of the wheel,” and then choose an appropriate point from the implied risk-return trade-off curve.

-however, the variance of the idiosyncratic term is not the weighted sum of the securities’ idiosyncratic variances: It is less than that!

Since the securities’ idiosyncratic terms are uncorrelated, they tend to diversify: With a high probability some will do well when others do poorly.

With a sufficiently large, well-diversified portfolio the variance of the portfolio’s idiosyncratic term is negligible.

For example, suppose that all securities in a portfolio have the same alpha: then the portfolio will have that alpha. Also suppose that each security has the same beta: then the portfolio will have the same beta as each of its securities. But if the variances of the idiosyncratic terms of the securities are the same, the variance of the idiosyncratic term for the portfolio will not be the same: It will be smaller than that of each of its securities. The idiosyncratic risks diversify away. The systematic risk (due to beta times the market) does not diversify away.

Generally, asset classes moved roughly in proportion to their historical betas.

At any time we should make our best estimates for “the next spin of the wheel,” and then choose an appropriate point from the implied risk-return trade-off curve.

Tags - markowitz , crisis

where mu is the mean value of the prices over time, and dW is simply some random Gaussian noise. Given a time series of the daily spread values, we can easily find theta(and mu) by performing a linear regression fit of the daily change in the spread dz against the spread itself, then we are able to calculate the half-life as log(2)/theta, which is the expected time it takes for the spread to revert to half its initial deviation from the mean. This half-life can be used to determine the optimal holding period for a mean-reverting position and as a measure for exit-trading strategy.

with Ito lemma, where the error term is normally distributed, therefore basically regression of dz on returns a value for instead of for theta itself.

In order to check the issue, I simulate a mean reversion process with dt=0.05, theta=0.75, mu=0.02 and run a regression

ols(dz, (mu - z(t-1))) = 0.03767243

It is far away from the true value 0.75, and we get a closer number 0.7680074 if we invert it back based on the equation .

Is it an error of the book or am I missing something? help me.

Tags - mean-reversion , parameter , estimation

Quotation

Academics and practitioners usually optimize portfolios on the basis of mean and variance. They set the goal of maximizing risk-adjusted returns measured by the **Sharpe ratio** and thus determine their optimal exposures to the assets considered. However, there is an alternative criterion that has an equally plausible underlying idea; **geometric mean maximization** aims to maximize the growth of the capital invested, thus seeking to maximize terminal wealth. This criterion has several attractive properties and is easy to implement, and yet it does not seem to be very widely used by practitioners. The ultimate goal of this article is to explore potential empirical reasons that may explain why this is the case. **The data, however, does not seem to suggest any clear answer, and, therefore, the question posed in the title remains largely unanswered: Are practitioners overlooking a useful criterion?**

Tags - portfolio , optimization