Quantitative Finance Collector

Tomorrow is the last day of this lunar year, wish all of you and me happy Chinese lunar new year.
抬板凳看春晚

1, Modeling the Cross Section of Stock Returns: A Model Pooling Approach, "This paper illustrates the advantages of a model pooling approach in contrast to model selection. Model pools of several asset pricing models including the CAPM, the Fama-French (1993) three-factor model, and the Carhart (1997) four-factor model are considered for the purpose of forming expectations (i.e., predictions) of the one-step-ahead returns for a cross section of stock portfolios." http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1536050;
2, Option Pricing with Piecewise-Constant Parameters, Discrete Jumps and Regime-Switching, "In this paper, I address systematically how to enhance the most existing option models with piecewise-constant parameters, and how to derive the corresponding closed-form characteristic function under the risk-neutral measure. As long as the characteristic function with piecewise-constant parameters is analytical known, the pricing formula for a European call is then given by inverse transform of the derived characteristic function." http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1547036;
3, Comparison of Numerical and Analytical Approximations of the Early Exercise Boundary of the American Put Option, "In this paper we present qualitative and quantitative comparison of various analytical and numerical approximation methods for calculating a position of the early exercise boundary of the American put option paying zero dividends." http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1547783;
4, Multivariate GARCH Models with Correlation Clustering, "This paper proposes a new clustered correlation multivariate GARCH model (CC-MGARCH) that allows conditional correlations to form clusters. This model can generalize the time-varying correlation structure in Tse and Tsui (2002) by determining a natural grouping of the correlations among the series." http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1548408;
5, Efficient Derivative Pricing by the Extended Method of Moments, "The local conditional moment restrictions are of special relevance in derivative pricing for reconstructing the pricing operator at a given day, by using the information in a few cross-sections of observed traded derivative prices and a time series of underlying asset returns." http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1550135.

A post from our blog sponsor, Elliott Wave International, the world's largest market forecasting firm founded in 1979 by Robert R. Prechter Jr. Its staff of full-time analysts provides 24-hour-a-day market analysis to institutional and private investors around the world.

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I have been struggling to find a suitable research topic for my PhD in finance these days, initially I chose to research on convertible bond underpricing considering multiple features other paper might fail to do so, but later on I realized the potential margin contribution is small with more knowledge on this field, indeed a few latest paper dealing with this issue already.

Do you happen to have an interesting topic that you or your colleagues want to work on while without enough time and resources? then probably you are able to help me by telling me what the topic is about to "abiao @ mathfinance.cn" (remove space). The topic needs to be:
1, applicable as a thesis topic;
2, about derivative pricing (equity, fx or IR), trading strategy, portfolio construction or quantitative risk analysis.

The benefits for both of us:
1, I find a sexy research topic to kill my boring overseas doctor life;
2, you get an update about the progress of the topic also attracting you from period to period;
3, a problem is solved hopefully.

I know it is hard to find a topic in this way, but I do appreciate any comment or hint or suggestion, especially from industry side.

A follow up post of my previous entry Using Quadrature method for option valuation, where the accuracy and computational speed are demonstrated briefly with a simple European option based on the paper "universal option valuation using quadrature methods". Today I play the Quadrature method for a vanilla convertible bond, still, the results are promising, for example, below is price performance comparision under Quadrature and PDE (specifically, finite element method) numerical solutions, where the CB has time-to-maturity two years, call barrier 12, call price 110, strike 10, risk-free rate 2%.




The exact computational time depends on the time steps and asset steps, but generally speaking, since Quadrature has a higher order of convergency rate, it is several times faster than finite element, in my case, Quadrature costs me less than ten seconds but finite elements costs me around one minute.

PS: the y-axis should be relative error.

This post has nothing to do with quantitative finance, so please skip it if you have no interest at all.

A friend of mine, who is an active animal protectionist, asked me if it is possible to embed a video on my blog. I didn't promise at the beginning worrying the video has nothing to do with my topic, but decide to do so after watching it, in addition, today is Sunday, take a rest then.

Dolphin is among the most intelligent animals and its often friendly appearance and seemingly playful attitude make it popular, I once read an article saying dolphin is as smart as an average three years kid, however, like many other animal species, it is under increasing human threat, as mentioned in Wikipedia, "In some parts of the world such as Taiji in Japan and the Faroe Islands, dolphins are traditionally considered as food, and killed in harpoon or drive hunts."

The video tells us how cruel the fishermen in Taiji are, how the activists hope to save dolphin but fail, a touching story worthy to think about.
PS: my friend is glad to add how happy he is after knowing Chinese government imposed a law recently against eatching dog meat in China, from now on it is illegal. A great step.

Below is the video, 90 minutes long, it is in English and with Chinese scripts.