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Using Equity Options to Hedge Credit Risks

Posted on October 27, 2024 By 
Credit risk refers to the potential for financial loss if a borrower fails to meet their debt obligations, such as repaying a loan or bond. Credit risk assessment involves evaluating the likelihood of default, often using financial metrics, historical performance, and credit ratings. Effective management of credit risk includes diversifying …
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Machine Learning Models for Predicting Implied Volatility Surfaces

Posted on October 23, 2024 By 
The Implied Volatility Surface (IVS) represents the variation of implied volatility across different strike prices and maturities for options on the same underlying asset. It provides a three-dimensional view where implied volatility is plotted against strike price (moneyness) and time to expiration, capturing market sentiment about expected future volatility. Unlike …
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Variance Ratio Test in Emerging Markets

Posted on October 15, 2024 By 
The Random Walk Hypothesis (RWH) suggests that stock prices move in a completely unpredictable manner, making it impossible to consistently outperform the market through stock selection or market timing. According to this hypothesis, changes in stock prices are independent of each other and follow a random path, meaning past price …
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Forecasting Direction of Volatility with HAR Model

Posted on October 11, 2024 By 
Volatility forecasting is important in portfolio and risk management because it helps portfolio and risk managers assess the potential risk and return of their investments. Accurate volatility forecasts help in setting appropriate risk limits, calculating Value-at-Risk (VaR), and managing portfolios. Most research has focused on forecasting the point estimate or …
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Is Influencer Marketing Effective?

Posted on October 7, 2024 By 
Influencer marketing is a strategy where brands collaborate with individuals who have a significant online following to promote products or services. This form of marketing has become increasingly popular as consumers tend to trust recommendations from individuals they follow over traditional advertising. By partnering with influencers, businesses can target specific …
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Use of Machine Learning in Pairs Trading

Posted on October 3, 2024 By 
Machine learning has become an essential tool in modern finance, transforming the way financial institutions and investors approach data analysis and decision-making. In areas such as portfolio management, algorithmic trading, credit scoring, and fraud detection, machine learning enables more accurate predictions, faster processing of information, and the automation of tasks …
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Term Structure of VIX Futures

Posted on September 29, 2024 By 
VIX futures are financial derivatives that allow traders to speculate on or hedge against future volatility in the stock market, specifically the S&P 500 index. They are based on the CBOE Volatility Index (VIX), which measures market expectations of near-term volatility. Unlike spot VIX, which reflects current market volatility, VIX …
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Beta Arbitrage Around Macroeconomic Announcements

Posted on September 21, 2024 By 
The macroeconomic announcement premium refers to the phenomenon where financial markets, particularly stock and bond markets, experience higher-than-usual returns on days when significant macroeconomic announcements are made. The premium represents the additional returns investors may receive due to increased trading activity, market reactions, or adjustments to expectations following these announcements. …
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