Putting Economics (Back) into Quantitative Models

36 Pages Posted: 14 Nov 2005

Date Written: November 8, 2005

Abstract

I review the shortcomings and assumptions of the present state of the art quantitative finance models. I show that simple concepts such as demand and supply from microeconomics, and aggregates from macroeconomics are not only useful, but essential for building robust models without giving up the concept of arbitrage pricing. Finally, an economically motivated simple model of the term structure is built and its parameters related to intuitively appealing macro variables.

Suggested Citation

Bhansali, Vineer, Putting Economics (Back) into Quantitative Models (November 8, 2005). Available at SSRN: https://ssrn.com/abstract=844926 or http://dx.doi.org/10.2139/ssrn.844926

Vineer Bhansali (Contact Author)

LongTail Alpha, LLC ( email )

500 Newport Center Drive
Suite 820
Newport Beach, CA 92660
United States

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