Retrieving "Asset Prices" from the archives
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Econometricians
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Financial Econometrics
This area focuses on modeling asset prices, volatility, and risk. Models like ARCH (Autoregressive Conditional Heteroskedasticity) and GARCH (Generalized ARCH) are foundational for capturing volatility clustering—the empirical observation that large price changes tend to be followed by large price changes, and small changes by small changes.
The failure of the Black-Scholes model to… -
Financial Engineering
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Stochastic Calculus and Diffusion Models
The bedrock of modern FE involves modeling asset prices as continuous-time stochastic processes. The geometric Brownian motion model remains the simplest baseline, assuming that asset returns follow a normal distribution, though empirical evidence suggests a preference for models incorporating Lévy processes to better capture "fat tails" characteristic of rare, high-impact [market eve…