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- Henryk Gzyl, Enrique ter Horst
- Entropy
- 2014

There are two entropy-based methods to deal with linear inverse problems, which we shall call the ordinary method of maximum entropy (OME) and the method of maximum entropy in the mean (MEM). Not only does MEM use OME as a stepping stone, it also allows for greater generality. First, because it allows to include convex constraints in a natural way, and… (More)

In this paper, we introduce a class of quite general Lévy processes, with both a diffusion part and a pure jump component, as a prior distribution for log prices and volatilities in stochastic volatility models. This extends the work of Duffie et al. [2000] who model the jump part of the process as a compound Poisson process. Besides using a general Lévy… (More)

- Henryk Gzyl, Enrique ter Horst, Samuel Malone
- ArXiv
- 2006

In this paper, we describe a general method for constructing the posterior distribution of an option price. Our framework takes as inputs the prior distributions of the parameters of the stochastic process followed by the underlying, as well as the likelihood function implied by the observed price history for the underlying. Our work extends that of Karolyi… (More)

- Henryk Gzyl, Enrique ter Horst
- ArXiv
- 2007

The purpose of this note is to show how the method of maximum entropy in the mean (MEM) may be used to improve parametric estimation when the measurements are corrupted by large level of noise. The method is developed in the context on a concrete example: that of estimation of the parameter in an exponential distribution. We compare the performance of our… (More)

We present a new method, based on the method of maximum entropy in the mean, which builds upon the standard method of maximum entropy, to improve the parametric estimation of a decay rate when the measurements are corrupted by large level of noise and, more importantly, when the number of measurements is small. The method is developed in the context on a… (More)

In this paper, we describe a general method for constructing the posterior distribution of an option price. Our framework takes as inputs the prior distributions of the parameters of the stochastic process followed by the underlying, as well as the likelihood function implied by the observed price history for the underlying. Our work extends that of Karolyi… (More)

Priced level, slope, and volatility risk factors recently proposed in the finance literature help explain long-standing puzzles related to the cross-section of carry trade returns. In this paper, we examine whether the information contained in these global factors allows foreign exchange market speculators in individual currencies to successfully time the… (More)

- Urbi Garay, Enrique ter Horst, +5 authors Nalan Basturk
- 2016

We define a dynamic and self-adjusting mixture of Gaussian Graphical Models to cluster financial returns, and provide a new method for extraction of nonparametric estimates of dynamic alphas (excess return) and betas (to a choice set of explanatory factors) in a multivariate setting. This approach, as well as the outputs, has a dynamic, nonstationary and… (More)

- Henryk Gzyl, German Molina, Enrique ter Horst
- ArXiv
- 2007

This paper aims to provide a practical example on the assessment and propagation of input uncertainty for option pricing when using tree-based methods. Input uncertainty is propagated into output uncertainty, reflecting that option prices are as unknown as the inputs they are based on. Option pricing formulas are tools whose validity is conditional not only… (More)

- Abel Rodriguez, Henryk Gzyl, German Molina, Enrique ter Horst
- ArXiv
- 2009

Mounting empirical evidence suggests that the observed extreme prices within a trading period can provide valuable information about the volatility of the process within that period. In this paper we define a class of stochastic volatility models that uses opening and closing prices along with the minimum and maximum prices within a trading period to infer… (More)

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