Monday, October 22, 2012

MoneyScience News

MoneyScience News

The end of stock market crashes?

Posted: 22 Oct 2012 04:17 AM PDT

A 72-year study of the Dow Jones could help avoid the kind of stock market crash that struck the world economy in 2008.read more...

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Blog Post: TheFinancialServicesClub: The future of payments and technology

Posted: 22 Oct 2012 02:24 AM PDT

Andrew Vorster, Vice President of R&D and Adam Banks, Chief Technology Officer for Visa Europe delivered a fascinating double act at the Financial Services Club the other night.read more...

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Published / Preprint: Ethics and Finance: the role of mathematics

Posted: 22 Oct 2012 12:40 AM PDT

This paper presents the contemporary Fundamental Theorem of Asset Pricing as being equivalent to approaches to pricing that emerged before 1700 in the context of Virtue Ethics. This is done by considering the history of science and mathematics in the thirteenth and seventeenth century. An explanat 838 ion as to why these approaches to pricing were forgotten between 1700 and 2000 is given, along...

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Published / Preprint: Simple arbitrage

Posted: 22 Oct 2012 12:40 AM PDT

We characterize absence of arbitrage with simple trading strategies in a discounted market with a constant bond and several risky assets. We show that if there is a simple arbitrage, then there is a 0-admissible one or an obvious one, that is, a simple arbitrage which promises a minimal riskless gain of \epsilon, if the investor trades at all. For continuous stock models, we provide an...

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Published / Preprint: Cascading Failures in Bi-partite Graphs: Model for Systemic Risk Propagation

Posted: 22 Oct 2012 12:40 AM PDT

In order to design complex networks that are robust and sustainable, we must understand systemic risk. As economic systems become increasingly interconnected, for example, a shock in a single financial network can provoke cascading failures throughout the system. The widespread effects of the current EU debt crisis and the 2008 world financial crisis occur because financial systems are...

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Published / Preprint: Ethics and Finance: the role of mathematics. (arXiv:1210.5390v1 [q-fin.GN])

Posted: 21 Oct 2012 05:36 PM PDT

This paper presents the contemporary Fundamental Theorem of Asset Pricing as being equivalent to approaches to pricing that emerged before 1700 in the context of Virtue Ethics. This is done by considering the history of science and mathematics in the thirteenth and seventeenth century. An explanation as to why these approaches to pricing were forgotten between 1700 and 2000 is given, along with...

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Published / Preprint: Simple arbitrage. (arXiv:1210.5391v1 [q-fin.PR])

Posted: 21 Oct 2012 05:36 PM PDT

We characterize absence of arbitrage with simple trading strategies in a discounted market with a constant bond and several risky assets. We show that if there is a simple arbitrage, then there is a 0-admissible one or an obvious one, that is, a simple arbitrage which promises a minimal riskless gain of \epsilon, if the investor trades at all. For continuous stock models, we provide an...

Visit MoneyScience for the Complete Article.

Published / Preprint: High order splitting schemes with complex timesteps and their application in mathematical finance. (arXiv:1210.5392v1 [math.NA])

Posted: 21 Oct 2012 05:36 PM PDT

High order splitting schemes with complex timesteps are applied to Kolmogorov backward equations stemming from stochastic differential equations in Stratonovich form. In the setting of weighted spaces, the necessary analyticity of the split semigroups can be easily proved. A numerical example from interest rate theory, the CIR2 model, is considered. The numerical results are robust for...

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Published / Preprint: Optimal Investment with Stocks and Derivatives. (arXiv:1210.5466v1 [q-fin.PM])

Posted: 21 Oct 2012 05:35 PM PDT

This paper studies the problem of maximizing expected utility from terminal wealth, combining a static position in derivative securities with a traditional dynamic trading strategy in stocks. We work in the framework of a general semi-martingale model and consider a utility function defined on the positive real line.

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Published / Preprint: Valuation of asset and volatility-dependent derivatives using decoupled time-changed L\'evy processes. (arXiv:1210.5479v1 [q-fin.PR])

Posted: 21 Oct 2012 05:35 PM PDT

A decoupled time-changed (DTC) L\'evy process is a generalized time-changed L\'evy process whose continuous and discontinuous parts are allowed to follow separate random time scalings. Disentangling the stochastic time change in two components not only provides a powerful unitary framework for the models already present in the literature, but in principle opens up new possibilities for...

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Blog Post: Falkenblog: Merton vs. Low Vol

Posted: 21 Oct 2012 05:23 PM PDT

Low volatility investing is becoming more popular, but the question is perhaps it could be better captured via a more inclusive metric of volatility. The Merton model of default popularized by Moody's KMV is basically a function of two inputs: volatility and leverage. If this model is correct, then a probability of firm failure is better captured than mere volatility alone, and perhaps it also...

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