Hong, Stein, and Yu (2007)

1. Motivation It's absolutely essential that people ignore most contingencies when making predictions in everyday life. Dennett (1984) makes this point quite colorfully by asking: "How is it that I can get myself a midnight snack? I suspect there … [Continue reading]

Two Period Kyle (1985) Model

plot--2-period-kyle-model-solution--08aug2014

1. Motivation This post shows how to solve for the equilibrium price impact and demand coefficients in a $2$ period Kyle (1985)-type model where informed traders see a noisy signal about the fundamental value of a single asset. There are various … [Continue reading]

Wavelet Variance

plot--wavelet-variance-white-noise--24jul2014

1. Motivation Imagine you're a trader who's about to put on a position for the next month. You want to hedge away the risk in this position associated with daily fluctuations in market returns. One way that you might do this would be to short the … [Continue reading]