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Published / Preprint: Arbitrage-free SVI volatility surfaces. (arXiv:1204.0646v1 [q-fin.PR])

April 4, 2012 by MoneyScience   Comments (0)

In this article, we show how to calibrate the widely-used SVI parameterization of the implied volatility surface in such a way as to guarantee the absence of static arbitrage. In particular, we exhibit a large class of arbitrage-free SVI volatility surfaces with a simple closed-form representation. We demonstrate the high quality of typical SVI fits with a numerical example using recent SPX options data.

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Published / Preprint: Maximum Maximum of Martingales given Marginals. (arXiv:1203.6877v1 [math.PR] CROSS LISTED)

April 4, 2012 by MoneyScience   Comments (0)

We consider the problem of superhedging under volatility uncertainty for an investor allowed to dynamically trade the underlying asset, and statically trade European call options for all possible strikes and finitely-many maturities. The dual formulation converts this problem into a continuous-time martingale optimal transportation problem which we solve explicitly for Lookback options with nondecreasing payoff function. In particular, our methodology recovers the extensions of the...

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Blog Post: AllAboutAlpha: Looking for Abnormal Market Activity

April 4, 2012 by MoneyScience   Comments (0)

Cinnober has sold a customized form of its Scila Surveillance software -- a product designed to detect abnormal market behavior -- to the Qatar Exchange. One of the purposes of Scila Surveillance is the detection of harmful variants of algorithmic trading, such as the trading "snipers" who drive off market makers and reduce liquidity.

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Cable Boom And HFT Exponential Leap in Manipulation

April 3, 2012 by CalConfidence   Comments (0)

I was talking with a research fellow from Casey Research and realized the power of metaphors when discussing bad algorithms and the way they are designed to trip traders and market participants.  

When my girlfriend and I want to go out at night she sometimes has trouble making up her mind.  This leads her to genuinely ask to change plans, maybe invite more friends to dinner, maybe change our dinner time, etc.  When this happens I'm ok with it.  Once she begins doing this as a means to trick me and game me so she can get exactly what she wants, I get frustrated.  That's Quote Fluttering.  Changing and tricking the opposition.  Here's an example of KORS stock on Valentines day this year:

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Blog Post: RobertPestonBlog: Wall Street comes to Watton

April 3, 2012 by MoneyScience   Comments (0)

Last week I visited Paul Adcock, joint owner of Adcock & Sons, a small retailer of TVs, washing machines and other consumer electrical goods in the small market town of Watton in Norfolk.read more...

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Blog Post: ThreeToedSloth: Factor Analysis (Advanced Data Analysis from an Elementary Point of View)

April 3, 2012 by MoneyScience   Comments (0)

Adding noise to PCA to get a statistical model. The factor model, or linear regression with unobserved independent variables. Assumptions of the factor model. Implications of the model: observable variables are correlated only through shared factors; "tetrad equations" for one factor models, more general correlation patterns for multiple factors. Our first look at latent variables and conditional independence. Geometrically, the factor model says the data cluster on some low-dimensional...

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Blog Post: NumericalAlgorithmsGroup: How To: Call Brent's Root-Finding Algorithm From C#

April 3, 2012 by MoneyScience   Comments (0)

As a Senior Technical Consultant for NAG, I answer many customer questions covering many topics. I thought I’d write up one such question I recently received from a NAG C Library user, as the answer may be useful to others. Q: In looking through the C# associated info, I found many examples of InteropService calls from C# to the C Library (CLW3209DA_nag.dll). Have any examples been posted for the "c05" functions, e.g. nag_zero_cont_func_brent_bsrch(c05agc)? A: I'm glad you asked! By the...

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