Needless to say, diversification plays a pivotal role in investment, not only for risk management, but for return generation. Attilio Meucci and his colleagues have another wonderful paper on managing diversification:

Click for codes http://www.mathworks.com/matlabcentral/fileexchange/23271

Volatility estimation and prediction is crucial for risk management, for example, the portfolio's Value at Risk (VaR) and expected shortfall are partly decided by your volatility estimated, by partly I mean other factors, like dependence structure decide their values as well. GARCH model is one of the popular models for volatility estimation, you might argue volatility regime should also be included to your model given the totally different performance (hence different parameters) between low volatility regime and high volatility regime. Here is a good paper comparing a set of different standard GARCH models with a group of Markov Regime-Switching GARCH (MRS-GARCH) in terms of their ability to forecast the US stock market volatility at horizons that range from one day to one month. To take into account the excessive persistence usually found in GARCH models that implies too smooth and too high volatility forecasts, in the MRS-GARCH models all parameters switch between a low and a high volatility regime. Both gaussian and fat-tailed conditional distributions for the residuals are assumed, and the degrees of freedom can also be state-dependent to capture possible time-varying kurtosis.

Download the paper and matlab codes at http://www.bepress.com/snde/vol9/iss4/art6/.
PS: In the codes the author multiply returns by 100 for optimization (hopefully for a faster convergence), I personally found the parameters are unstable with the change of this number. no idea if it is my data problem.

ALMOST NOTHING POSITIVE, these are the most heard words recently whenver I have a talk with my former colleagues and classmates, as you might recall from my post "shit happens everywhere", I will lost my current job soon as well. Yes, it is true, i was told i could only stay in my office till the end of June, which means I have to either look for a new job, for instance, Finance Career: Learn about finance firm profiles, finance jobs, finance career message boards and more. ,  or find another way out, for instance, study for a MFE or PhD.

Staying at university for a while is no doubt a good way to decrease the impact of credit crisis on you, since the job hunting competition gets tough and tough, even a humble position requires "ideally an applicant with PhD degree with 2 or more years work experience". How to choose a good MFE or PhD in QF program is natually a question everybody has before application, here by good program I mean good placement with accepted tuition fee (PS: I saw two weeks ago The University of Hawai’i Shidler College Of Business is offering one year Master of Financial Engineering program with scholarship available, search in Google if you are happy with the location). I happen to see such a rank, which might be suggestive to you, although this rank is too old,

Bad news for all of us, Professor Neftci passed away yesterday in Geneva.

He is a such an important person to my quant-related life, his book Introduction to the Mathematics Of Financial Derivatives is so clear and easy to understand for anybody without any stochastic background, which helped me to work through my first master thesis at 2004; and his another book Principles of Financial Engineering is almost a must-owned one...

Silent Salute!

Equity Option Calculator on Gphone was shared in this post. The author has published a binary option calculator for Gphone, as the author's webpage says:



To download, either search "Binary Option" on Gphone, or simply go to the author's blog http://jwdevg1.blogspot.com/2009/04/binary-option-calculator-published.html