As reading & reflecting time after work permits...
Econometrics from wikipedia
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Econometrics is concerned with the tasks of developing and applying quantitative or statistical methods to the study and elucidation of economic principles.[1] Econometrics combines economic theory with statistics to analyze and test economic relationships. Theoretical econometrics considers questions about the statistical properties of estimators and tests, while applied econometrics is concerned with the application of econometric methods to assess economic theories. Although the first known use of the term "econometrics" was by Pawel Ciompa in 1910, Ragnar Frisch is given credit for coining the term in the sense that it is used today.[2]
Although many econometric methods represent applications of standard statistical models, there are some special features of economic data that distinguish econometrics from other branches of statistics. Economic data are generally observational, rather than being derived from controlled experiments. Because the individual units in an economy interact with each other, the observed data tend to reflect complex economic equilibrium conditions rather than simple behavioral relationships based on preferences or technology. Consequently, the field of econometrics has developed methods for identification and estimation of simultaneous equation models. These methods allow researchers to make causal inferences in the absence of controlled experiments. Early work in econometrics focused on time-series data, but now econometrics also fully covers cross-sectional and panel data.
Carabenciov, I. Ermolaev, I. Freedman, C., Julliard M., Kamenik, O., Korshunov, D., Laxton, D. (2008). A small quarterly projection model of the US economy. IMF Working Paper WP/08/278
Benninga, S. (2008). Financial modeling (3rd Ed.) Massachusetts Institute of Technology.
Leathwick, J.R., Rowe, D., Richardson, J., Elith, J. & Hastie, T. (2005). Using
multivariate adaptive regression splines to predict the distributions of
New Zealand's freshwater diadromous fish. Freswater Biology, 50,
2034-2052.
It briefs well however, where the rubber meets the road, I am still getting my a@% handed to me with respect to individual stocks despite my crude and incomplete modeling attempts....hmmm :o
Modeling Backgrounders...
Isaac Asmiov's Foundation Series by Wikipedia
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The premise of the series is that mathematician Hari Seldon spent his life developing a branch of mathematics known as psychohistory, a concept devised by Asimov and his editor John W. Campbell. Using the law of mass action, it can predict the future, but only on a large scale; it is error-prone on a small scale. It works on the principle that the behaviour of a mass of people is predictable if the quantity of this mass is very large (equal to the population of the galaxy which has a population of around a quadrillion). The larger the mass, the more predictable is the future. Using these techniques, Seldon foresees the fall of the Galactic Empire, which encompasses the entire Milky Way, and a dark age lasting thirty thousand years before a second great empire arises. To shorten the period of barbarism, he creates two Foundations, small, secluded havens of all human knowledge, on opposite ends of the galaxy. The focus of the trilogy is on the Foundation of the planet Terminus. The people living there are working on an all-encompassing Encyclopedia, and are unaware of Seldon's real intentions (for if they were, the variables would become too uncontrolled). The Encyclopedia serves to preserve knowledge of the physical sciences after the collapse. The Foundation's location is chosen so that it acts as the focal point for the next empire in another thousand years (rather than the projected thirty thousand).
The successful Quantum Fund by wikipedia
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In 1992, the lead fund, Soros's Quantum Fund became famous for "breaking" the Bank of England, forcing it to devalue the pound. Soros had bet his entire fund in a short sale on the prediction that the British currency would drop in value (it did), a coup that netted him a profit of $1 billion.[citation needed]
The unsuccessful Long Term Capital Management Fund by wikipedia
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Long-Term Capital Management (LTCM) was a U.S. hedge fund which used trading strategies such as fixed income arbitrage, statistical arbitrage, and pairs trading, combined with high leverage. It failed spectacularly in the late 1990s, leading to a massive bailout by other major banks and investment houses,[1] which was supervised by the Federal Reserve.
LTCM was founded in 1994 by John Meriwether, the former vice-chairman and head of bond trading at Salomon Brothers. Board of directors members included Myron Scholes and Robert C. Merton, who shared the 1997 Nobel Memorial Prize in Economic Sciences.[2] Initially enormously successful with annualized returns of over 40% (after fees) in its first years, in 1998 it lost $4.6 billion in less than four months following the Russian financial crisis and became a prominent example of the risk potential in the hedge fund industry. The fund folded in early 2000.
The Black-Scholes Model by wikipedia
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The model treats only European-style options. From these ideal conditions in the market for an equity (and for an option on the equity), the authors show that the value of an option (the Black-Scholes formula) varies only with the stock price and time to expiry. "Thus it is possible to create a hedged position, consisting of a long position in the stock and a short position in [calls on the same stock], whose value will not depend on the price of the stock."[1]
