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What ETAS Says?

17 August 2017 by pdonnat

The Epidemic Type Aftershock Sequence (ETAS) model is used to estimate a time-dependent probability of earthquake occurrence. In this model, each event triggers a new event and so on in a continuous sequence of possible chocks. The US president twits are offering a new field of application for this model. The intensity of the market movement is a good measure of the intensity of each event. The unpredictable is indeed predictable.
The credit market was not immune to the US tensions. The US investment grade index was wider by 3 bps at London close and kept widening afterwards up to 62.5 bps. The credit indices are now trading at the widest level over the last month. However, the implied volatility is still offered at 1.5 bps per day. We have not yet seen a full repricing of the volatility. The volatility sellers have nerves of steel and an accurate ETAS model.