A Hidden Markov Model (HMM) is used to model the VIX (the Cboe Volatility Index). A 4- state Gaussian mixture is fitted to the VIX price history from 1990 to 2022. Using a growing window of training data, the price of the S&P500 is predicted and two trading algorithms are presented, based on the...

We propose a method for forecasting individual outcomes and estimating random effects in linear panel data models and value-added models when the panel has a short time dimension. The method is robust, trivial to implement and requires minimal assumptions. The idea is to take a weighted average...

Volatility has been one of the most active and successful areas of research in time series econometrics and economic forecasting in recent decades. This chapter provides a selective survey of the most important theoretical developments and empirical insights to emerge from this burgeoning...

If returns on two assets share common volatility components, the prices of options on the assets should be interdependent and the implied volatility spread should mean revert. We, first demonstrate, using the canonical correlation method, that there is a common component among the volatilities...

The dynamic dividend growth model linking the log dividend yield to future expected dividend growth and stock market returns has been extensively used in the literature for forecasting stock returns. The empirical evidence on the performance of the model is mixed as its strength varies with the...

This article examines the relationship between observed claim frequencies in the automobile insurance line and the evolution of selected economic magnitudes. From a variety of economic variables, we aim to identify the main factors affecting claim frequencies, while controlling for other...

Machine learning and its numerous variants have meanwhile become established tools in many areas of society. Several attempts have been made to apply machine learning to the prediction of the outcome of professional sports events and to exploit "inefficiencies" in the corresponding betting...

The Basel Committee on Banking Supervision recently proposed fundamental changes in the regulatory treatment of financial institutions' trading book positions. Among others, a replacement of Value-at-Risk (α=0.99) by Expected Shortfall (α=0.975) for the quantification of market risk is...

Aviation is a key sector of the economy, contributing at least 3% to gross domestic product (GDP) in the UK and the US. Currently, airline performance statistics are published with a three month delay. However, aircraft now broadcast their location in real-time using the Automated Dependent...

When making a decision, humans consider two types of information: information they have acquired through their prior experience of the world, and further information they gather to support the decision in question. Here, we present evidence that data from search engines such as Google can help...