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Feb 5

Friday reading list 05/02/2010

Posted by abiao at 10:35 | Others | Comments(0) | Reads(3329)
Several good working paper have been found this week, hope you will also enjoy them.

1, Quant Nugget 1: Square-Root Rule, Covariances and Ellipsoids: How to Analyze and Visualize the Propagation Law of Risk in a Multi-Dimensional Market, "How to analyze and visualize the propagation law of risk in a multi-dimensional market.", http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1548162;
2, Variance Swap Portfolio Theory, "Optimal portfolios of variance swaps are constructed taking account of both autocorrelation and cross asset dependencies. Market prices of variance swaps are extracted from option surface calibrations. The methods developed permit simulation of cash flows to arbitrary portfolios of variance swaps. The optimal design maximizes the index of acceptability introduced in Cherny and Madan (2009).", http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1540815;
3, Efficient Options Pricing Using the Fast Fourier Transform , "The Fourier transform methods provide the valuable and indispensable tools for option pricing under L´evy processes since the analytic representation of the haracteristic function of the underlying asset return is more readily available than that of the density function itself. When used together with the FFT algorithms, real time pricing of a wide range of option models under L'evy processes can be delivered using the Fourier transform approach with highaccuracy, efficiency and reliability." http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1534544;
4, Interest Rates and The Credit Crunch: New Formulas and Market Models , "We start by describing the major changes that occurred in the quotes of market rates after the 2007 subprime mortgage crisis. We comment on their lost analogies and consistencies, and hint on a possible, simple way to formally reconcile them. We then show how to price interest rate swaps under the new market practice of using different curves for generating future LIBOR rates and for discounting cash flows. Straightforward modifications of the market formulas for caps and swaptions will also be derived. " http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1332205;
5, How Do Individual Investors Trade? , "This paper examines how high-frequency trading decisions (especially the choice of market versus limit orders) of individual investors are influenced by past price changes. Specifically, we address the question whether trading decisions to open or close a position are different in the case in which investors already hold a position than in the case in which they don't.", http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1538760;
6, Optimisation in Financial Engineering , "We discuss the precision with which financial models are handled, in particular optimisation models. We argue that precision is only required to a level that is justified by the overall accuracy of the model. Hence, the required precision should be specifically analysed, so to better appreciate the usefulness and limitations of a model." http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1547173

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