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Aug 16
A very nice paper by Knaup and Wagner (2012) published in Management Science. Enjoy it.

We propose a new method for measuring the quality of banks' credit portfolios. This method makes use of information embedded in bank share prices by exploiting differences in their sensitivity to credit default swap spreads of borrowers of varying quality. The method allows us to derive a credit risk indicator (CRI). This indicator represents the perceived share of high-risk exposures in a bank's portfolio and can be used as a risk weight for computing regulatory capital requirements. We estimate CRIs for the 150 largest U.S. bank holding companies. We find that their CRIs are able to forecast bank failures and share price performances during the crisis of 2007–2009, even after controlling for a variety of traditional asset quality and general risk proxies.


Article, Working paper
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Aug 15
Basics of Using Bloomberg
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.

Starting and Installing the terminal


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.

Navigating through the options


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.

For example:


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.

Checking out the Tickers


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.

Accessing the Help Options


HELP: The keyboard comes with a green key with HELP written on it. It helps you to navigate through the interface. If you are unable to comprehend the meaning of anything on the screen you can press the HELP key that then displays the information on the screen. It helps you out also when you are unable to navigate. In that case you can press the HELP button twice that sends a message to the Helpdesk of Bloomberg. You can sit for a live chat with the Bloomberg professionals who will then help you through your problem.

Sending Messages


MSG: The MSG key helps you to communicate with other users where you can carry out discussions. With Bloomberg you can even set the contacts of other users in your speed dial list thereby making it easier for you. It facilitates quick sending of messages. You can choose to send messages in Bloomberg using either of the two techniques. The first refers to the more common technique of sending messages through emails while the other is the more convenient method of sending messages through immediate transmission which takes a messaging window.
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Aug 13
On Geometric and Arithmetic Approaches to Attribution Linking: MATLAB Code: The new Arithmetic Linking Algorithm effectively “patches the existing holes” in other methods. Unlike the standard and modified Frongello Algorithms, the new method is independent of the month order. Compared to Carino and Menchero, this is a linear and non-smoothing construction. The new algorithm is simple, easy to use, and hence more appropriate for practitioners without advanced training in mathematics. It should eventually replace whatever Arithmetic algorithm is used by Performance Measurement specialists.

R/Finance 2012: Applied Finance with R: slides for the R/Finance 2012: Applied Finance with R conference.

Black-Scholes Option Pricing in MATLAB using the NAG Toolbox: how to use the NAG Toolbox for MATLAB to replace some of the option pricing routines in the Finance Toolbox.
Jul 31
A nice paper written by Han and Zhang (2012) in The Econometrics Journal.

We investigate a new non-stationary non-parametric volatility model, in which the conditional variance of time series is modelled as a non-parametric function of an integrated or near-integrated covariate. Importantly, the model can generate the long memory property in volatility and allow the unconditional variance of time series to be time-varying. These properties cannot be derived from most existing non-parametric or semi-parametric volatility models. We show that the kernel estimate of the model is consistent and its asymptotic distribution is mixed normal. For an empirical application of the model, we study the daily S&P 500 index return volatility using the VIX index as the covariate. It is shown that our model performs reasonably well both in within-sample and out-of-sample forecasts.


article, or working paper.
Jul 23
I have tested several R optimization functions before: nlm, optim(Nelder-Mead), optim(BFGS), optim(SANN), nlminb, optim (L-BFGS-B) for a eight-parameter Vasicek interest rate model, overall I find that for my setting, nlminb is the best and all R functions finish within seconds. For detail please read the old post at R optimization function test



Pat at Portfolio Probe recently had a wonderful test on some heuristic optimization methods, including simulated annealing, traditional genetic algorithm, evolutionary algorithms. By using R packages and functions - Rmalschains, GenSA, genopt, DEoptim, soma, rgenoud, GA, NMOF and SANN method of optim, he finds that the Rmalschains and GenSA packages are standing out. Nice one, original article is at A comparison of some heuristic optimization methods.
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