Explain econometric models
Explain econometric models.
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Econometric models: These models use different forms of time series analysis to estimate future and current expected actual volatility. They are classically based on several regression of volatility against past returns and they may include autoregressive or moving-average components. In such category are the GARCH types of models. But one models the square of volatility and the variance, and sometimes one uses high-low-open-close data and not only closing prices, as well as sometimes one models the logarithm of volatility. The concluding seems to be quite promising since there is evidence as actual volatility is lognormally distributed. Another work in this area decomposes the volatility of a stock in components, industry volatility, market volatility and firm-specific volatility. It is similar to CAPM for returns.
Illustrate how the bank can employ a position alternatively in Eurodollar futures contracts to hedge the interest rate risk formed by the maturity mismatch it has with the $3,000,000 six-month Eurodollar deposit & rollover Eurocredit position indexed to th
What can a financial institution frequently do for a DEU (deficit economic unit) that it would have trouble doing for itself if the DEU were to deal directly with SEU?
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Define an example to Hedge?
In which measurement semi-variance mathematical definition of risk is used?
When is the close relationship breaks-down in hedging reasons?
Explain marking to market with an example.
Should you place all your money in a stock which has low risk but also low expected return, or one along with high expected return but that is far riskier or maybe divide your money among the two?
Explain the second way of calibration if we can’t measure that parameter.
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