- The Oxford Handbook of Applied Bayesian Analysis
- Preface
- List of Contributors
- Flexible Bayes regression of epidemiologic data
- Bayesian modelling for matching and alignment of biomolecules
- Bayesian approaches to aspects of the Vioxx trials: Non-ignorable dropout and sequential meta-analysis
- Sensitivity analysis in microbial risk assessment: Vero-cytotoxigenic <i>E. coli</i> O157 in farm-pasteurized milk
- Mapping malaria in the Amazon rain forest: A spatio-temporal mixture model
- Trans-study projection of genomic biomarkers in analysis of oncogene deregulation and breast cancer
- Linking systems biology models to data: A stochastic kinetic model of p53 oscillations
- Paternity testing allowing for uncertain mutation rates
- Bayesian analysis and decisions in nuclear power plant maintenance
- Bayes linear uncertainty analysis for oil reservoirs based on multiscale computer experiments
- Bayesian modelling of train door reliability
- Analysis of economic data with multiscale spatio-temporal models
- Extracting S&P500 and NASDAQ Volatility: The Credit Crisis of 2007–2008
- Futures markets, Bayesian forecasting and risk modelling
- The new macroeconometrics: A Bayesian approach
- Assessing the probability of rare climate events
- Models for demography of plant populations
- Combining monitoring data and computer model output in assessing environmental exposure
- Indirect elicitation from ecological experts: From methods and software to habitat modelling and rock-wallabies
- Characterizing the uncertainty of climate change projections using hierarchical models
- Volatility in prediction markets: A measure of information flow in political campaigns
- Bayesian analysis in item response theory applied to a large-scale educational assessment
- Sequential multilocation auditing and the New York food stamps program
- Bayesian causal inference: Approaches to estimating the effect of treating hospital type on cancer survival in Sweden using principal stratification
- Bayesian statistical methods for audio and music processing
- Combining simulations and physical observations to estimate cosmological parameters
- Probabilistic grammars and hierarchical Dirichlet processes
- Designing and analysing a circuit device experiment using treed Gaussian processes
- Multistate models for mental fatigue
- Index
Abstract and Keywords
This article demonstrates the utility of the Bayesian approach in forecasting and risk modelling regarding speculative trading strategies in financial futures markets. It first provides an overview of subjective expectations that are motivated as fair prices of futures contracts before discussing the futures markets and a portfolio mean-variance efficiency generalization. In particular, it considers the critical role of hedging to ensue attractive risk-adjusted performance. It also describes general Bayesian dynamic models and specific Bayesian dynamic linear models for assessing risk models in terms of their hedging effectiveness in the context of the risk-adjusted performance of trading strategies. The article showcases applied Bayesian thinking in the context of financial investment management, highlighting the corresponding concepts of betting and investing, prices and expectations, and coherence and arbitrage-free pricing in futures markets over the period 1990–2008.
Keywords: speculative trading, financial futures markets, risk modelling, hedging, investment management, arbitrage-free pricing, subjective expectations, futures contracts, dynamic linear models, forecasting
Jesús Fernández-Villaverde, Department of Economics, University of Pennsylvania, 160 McNeil Building, 3718 Locust Walk Philadelphia, PA 19004, USA
Pablo Guerrón-Quintana, Economist, Federal Reserve Bank of Philadelphia, Ten Independence Mall, Philadelphia, PA 19106, USA
Juan F. Rubio-Ramírez, 213 Social Sciences, Duke University, Durham, NC 27708, USA
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- The Oxford Handbook of Applied Bayesian Analysis
- Preface
- List of Contributors
- Flexible Bayes regression of epidemiologic data
- Bayesian modelling for matching and alignment of biomolecules
- Bayesian approaches to aspects of the Vioxx trials: Non-ignorable dropout and sequential meta-analysis
- Sensitivity analysis in microbial risk assessment: Vero-cytotoxigenic <i>E. coli</i> O157 in farm-pasteurized milk
- Mapping malaria in the Amazon rain forest: A spatio-temporal mixture model
- Trans-study projection of genomic biomarkers in analysis of oncogene deregulation and breast cancer
- Linking systems biology models to data: A stochastic kinetic model of p53 oscillations
- Paternity testing allowing for uncertain mutation rates
- Bayesian analysis and decisions in nuclear power plant maintenance
- Bayes linear uncertainty analysis for oil reservoirs based on multiscale computer experiments
- Bayesian modelling of train door reliability
- Analysis of economic data with multiscale spatio-temporal models
- Extracting S&P500 and NASDAQ Volatility: The Credit Crisis of 2007–2008
- Futures markets, Bayesian forecasting and risk modelling
- The new macroeconometrics: A Bayesian approach
- Assessing the probability of rare climate events
- Models for demography of plant populations
- Combining monitoring data and computer model output in assessing environmental exposure
- Indirect elicitation from ecological experts: From methods and software to habitat modelling and rock-wallabies
- Characterizing the uncertainty of climate change projections using hierarchical models
- Volatility in prediction markets: A measure of information flow in political campaigns
- Bayesian analysis in item response theory applied to a large-scale educational assessment
- Sequential multilocation auditing and the New York food stamps program
- Bayesian causal inference: Approaches to estimating the effect of treating hospital type on cancer survival in Sweden using principal stratification
- Bayesian statistical methods for audio and music processing
- Combining simulations and physical observations to estimate cosmological parameters
- Probabilistic grammars and hierarchical Dirichlet processes
- Designing and analysing a circuit device experiment using treed Gaussian processes
- Multistate models for mental fatigue
- Index
