Quantitative Finance Collector

An interesting application of Inverse Graphing Calculator, where you enter any word from A to Z into your calculator and then get a graph of the curve.

For instance, if you write an equation:


you would get a graph below:


Creat your own at http://www.xamuel.com/inverse-graphing-calculator.php

Sudoku is one of my favorite small games I often have fun with, I save one copy at my gphone and play it whenever I want to take a rest. (most of us may have a wrong impression that Sudoku originated in Japan, no, in America.)

I happened to find Cleve Moler solved Sudoku using recursive backtracking method and the speed is fast, the minor error is it doesn't report an error when the initial 9*9 matrix you give violates Sudoku rules (you can test it later, the code starts to run and returns a result even you give repetitive numbers along a same row or column). Since building a GUI in matlab isn't easy, I choose to build a Sudoku spreadsheet using Matlab Excel link for an example.

Once you install Excel Link module and turn it on, you will notice the short-cuts on the excel menu bar looking like
  
intuitively, those buttons stand for "start matlab", "send data to matlab", "retrieve data from matlab", and "execute the matlab command", respectively.

For my case, I first download the Sudoku M code at http://www.mathworks.co.uk/company/newsletters/news_notes/2009/clevescorner.html?s_cid=ACD0210ukTA2&s_v1=8728847_1-BR7DSN, then open an excel file, write down a 9*9 matrix "X"

then define a zone to fetch the calculation result, which should also be 9*9

I made a small change to the Friday reading list section by adding a new category Articles, which can be easily seen above at the menu bar. So from now on all recommended paper, together with shared interesting articles, will not be shown on the main page any more but rather under separated Articles category . For one thing, this movement facilitates my sharing process, I don't have to add paper/articles to my reading list only on Friday; for another, since not all people like reading technical paper, they can now choose not to see them at all, which is especially a benefit to blog feed readers as the reading list will "disappear" from update.

Also, please consider sharing to your friends if you think this blog is useful by bookmarking at the right sidebar button or linking to us if possible, I do appreciate your 10 seconds support.

Have a nice weekend.  

For over ten decades, the mainstream financial world has embraced the view that external news events drive trend changes in the markets. In less than ten minutes, EWI's senior tutorial instructor Wayne Gorman shatters that very idea into a fine dust, swept away into thin air.

In part one of his exclusive, three-part Club EWI video series "Why Use The Wave Principle," Wayne first assesses the pitfalls of relying on macroeconomic models to forecast; namely: "An investor is lured into the market at just the worst time, when it's time to sell, and forced out just at the best time to buy."

As for real world examples of this happening, Wayne spans three hundred years of financial history to reveal how the most pivotal economic, political, and environmental events failed to alter the course of their respective markets. Here, the free video includes groundbreaking charts on these (and more) well known episodes:

The S&P 500 and Enron from 2000-2002: The stock market ROSE and continued to proceed upward AFTER the largest US corporate scandal and bankruptcy ever (at the time).
The Dow Industrials and GDP quarterly data from 1970 to early 2000s: After the release of major negative GDP numbers, the market for the most part ROSE, just the opposite of what most market analysts and investors expect.
The Dow and profound political events over the last 80 years: In the 1930s and 1940s, a series of negative incidents -- i.e. Hitler rising to power, World War II, and the Holocaust -- preceded a powerful uptrend in stocks all the way into the 1960s.
Stock market charts of the five countries most affected by the 2004 Indian Ocean Tsunami (India, Indonesia, Malaysia, Sri Lanka, and Thailand). Four out of the five ROSE after the natural disaster...


Believe it or not, we've only scratched the surface. In his myth-busting, free video "Why Use The Wave Principle," Wayne Gorman presents a total of 40 charts that capture failed fundamental analysis of the world's leading financial markets. Wayne recalls this expression from a famous, Nobel Prize winning economist:

"Economic reasoning will be of no value in cases of uncertainty."

And he offers this response:

"But isn't that what we have in financial markets: cases of uncertainty? We need a different type of reasoning, one that will help us to avoid the pitfalls shown on the previous charts. That's why the Wave Principle is so important. It offers a unique perspective and a market discipline of rules and guidelines that help investors avoid buying at tops and liquidating at bottoms. It helps to explain and understand trends before they happen."

The flaw in Economic 101, cause-and-effect theory is one of the easiest things to prove. But it's also one of the hardest things for many investors to accept. Now is the time to do so. Watch the free "Why Use The Wave Principle," video in its entirety today at absolutely no cost. Simply sign on to join the rapidly expanding Club EWI and take advantage of the amazing educational benefits membership has to offer.

A follow-up of my previous post Value at Risk xls, I was asked why not & how to add a VaR backtesting module in that excel file, well, it is straightforward in principle to do that but since we have to calculate daily VaR for multiple periods in order to do backtesting, I simply didn't add that in an excel for speed reason.

The Backtesting framework developed by the Basel committee is the main methodology to judge the performance of VaR model, it typically consists of a periodic comparison of the portfolio’s or asset’s daily VaR values with the subsequent daily profit and loss (P&L). Obviously, the ideal model should generate the times of VaR exceeding P&L equal to (1-alpha) multiplied by time periods for backtesting. For a single equity case it is obvious what we need to do is comparing daily VaR results with daily return; but for a portfolio we have to be careful with the trading positions.

Basel committee (1996) introduces a three-zone approach, where the green zone means the possibility of erroneously accepting an inaccurate model is low; yellow zone is risk manager should be careful to check the model before take action; red zone means the probability of erroneously rejecting an accurate model is remote. For example, the backtesting three zones boundaries for a sample of 250 observations, source from Basel committee, 1996 look like

Backtesting results can therefore be judged by counting the number of exceptions and seeing intuitively which colour zone it falls into.

Alternatively you can rely on some statistical testing, for instance, the exception testing by Kupiec (1995).

Your final VaR backtesting results will look similar to


by which you are able to tell the performance of your VaR model.

certainly there isn't only one way for VaR backtesting, the above-mentioned one is an example.