3
3.0

Jun 28, 2018
06/18

by
Aurelio F. Bariviera; M. Belen Guercio; Lisana B. Martinez; Osvaldo A. Rosso

texts

######
eye 3

######
favorite 0

######
comment 0

This paper analyzes Libor interest rates for seven different maturities and referred to operations in British Pounds, Euro, Swiss Francs and Japanese Yen, during the period years 2001 to 2015. The analysis is performed by means of two quantifiers derived from Information Theory: the permutation Shannon entropy and the permutation Fisher information measure. An anomalous behavior in the Libor is detected in all currencies except Euro during the years 2006--2012. The stochastic switch is more...

Topics: Quantitative Finance, Statistical Finance, Computational Finance

Source: http://arxiv.org/abs/1509.00217

0
0.0

Jun 28, 2018
06/18

by
Masaaki Fujii; Akihiko Takahashi

texts

######
eye 0

######
favorite 0

######
comment 0

The paper develops an asymptotic expansion method for forward-backward SDEs (FBSDEs) driven by the random Poisson measures with sigma-finite compensators. The expansion is performed around the small-variance limit of the forward SDE and does not necessarily require a small size of the non-linearity in the BSDE's driver, which was actually the case for the linearization method proposed by the current authors in a Brownian setup before. A semi-analytic solution technique, which only requires a...

Topics: Computational Finance, Mathematical Finance, Quantitative Finance

Source: http://arxiv.org/abs/1510.03220

5
5.0

Jun 27, 2018
06/18

by
Jun-Jie Chen; Lei Tan; Bo Zheng

texts

######
eye 5

######
favorite 0

######
comment 0

In complex financial systems, the sector structure and volatility clustering are respectively important features of the spatial and temporal correlations. However, the microscopic generation mechanism of the sector structure is not yet understood. Especially, how to produce these two features in one model remains challenging. We introduce a novel interaction mechanism, i.e., the multi-level herding, in constructing an agent-based model to investigate the sector structure combined with...

Topics: Quantitative Finance, General Finance, Statistical Finance

Source: http://arxiv.org/abs/1504.01811

4
4.0

Jun 28, 2018
06/18

by
Aurelio F. Bariviera; M. Belén Guercio; Lisana B. Martinez; Osvaldo A. Rosso

texts

######
eye 4

######
favorite 0

######
comment 0

This paper analyzes several interest rates time series from the United Kingdom during the period 1999 to 2014. The analysis is carried out using a pioneering statistical tool in the financial literature: the complexity-entropy causality plane. This representation is able to classify different stochastic and chaotic regimes in time series. We use sliding temporal windows to assess changes in the intrinsic stochastic dynamics of the time series. Anomalous behavior in the Libor is detected,...

Topics: Quantitative Finance, Statistical Finance, Computational Finance

Source: http://arxiv.org/abs/1508.04748

0
0.0

Jun 28, 2018
06/18

by
Thilo A. Schmitt; Rudi Schäfer; Holger Dette; Thomas Guhr

texts

######
eye 0

######
favorite 0

######
comment 0

We conduct an empirical study using the quantile-based correlation function to uncover the temporal dependencies in financial time series. The study uses intraday data for the S\&P 500 stocks from the New York Stock Exchange. After establishing an empirical overview we compare the quantile-based correlation function to stochastic processes from the GARCH family and find striking differences. This motivates us to propose the quantile-based correlation function as a powerful tool to assess...

Topics: General Finance, Quantitative Finance, Statistical Finance

Source: http://arxiv.org/abs/1507.04990

0
0.0

Jun 28, 2018
06/18

by
Xin Li; Carlos F. Tolmasky

texts

######
eye 0

######
favorite 0

######
comment 0

We propose a new volatility model based on two stylized facts of the volatility in the stock market: clustering and leverage effect. We calibrate our model parameters, in the leading order, with 77 years Dow Jones Industrial Average data. We find in the short time scale (10 to 50 days) the future volatility is sensitive to the sign of past returns, i.e. asymmetric feedback or leverage effect. However, in the long time scale (300 to 1000 days) clustering becomes the main factor. We study...

Topics: Statistical Finance, Mathematical Finance, Quantitative Finance

Source: http://arxiv.org/abs/1512.01916

3
3.0

Jun 28, 2018
06/18

by
Luca Di Persio; Michele Bonollo; Gregorio Pellegrini

texts

######
eye 3

######
favorite 0

######
comment 0

The Polynomial Chaos Expansion (PCE) technique recovers a finite second order random variable exploiting suitable linear combinations of orthogonal polynomials which are functions of a given stochas- tic quantity {\xi}, hence acting as a kind of random basis. The PCE methodology has been developed as a mathematically rigorous Uncertainty Quantification (UQ) method which aims at providing reliable numerical estimates for some uncertain physical quantities defining the dynamic of certain...

Topics: Quantitative Finance, Mathematical Finance, Computational Finance

Source: http://arxiv.org/abs/1508.06236

5
5.0

Jun 26, 2018
06/18

by
Yannis G. Yatracos

texts

######
eye 5

######
favorite 0

######
comment 0

The price of a stock will rarely follow the assumed model and a curious investor or a Regulatory Authority may wish to obtain a probability model the prices support. A risk neutral probability ${\cal P}^*$ for the stock's price at time $T$ is determined in closed form from the prices before $T$ without assuming a price model. The findings indicate that ${\cal P}^*$ may be a mixture. Under mild conditions on the prices the necessary and sufficient condition to obtain ${\cal P}^*$ is the...

Topics: Quantitative Finance, General Finance, Mathematical Finance

Source: http://arxiv.org/abs/1501.07473

2
2.0

Jun 26, 2018
06/18

by
Gianluca Cassese

texts

######
eye 2

######
favorite 0

######
comment 0

We propose a new non parametric technique to estimate the CALL function based on the superhedging principle. Our approach does not require absence of arbitrage and easily accommodates bid/ask spreads and other market imperfections. We prove some optimal statistical properties of our estimates. As an application we first test the methodology on a simulated sample of option prices and then on the S\&P 500 index options.

Topics: General Finance, Quantitative Finance, Computational Finance

Source: http://arxiv.org/abs/1502.03978

0
0.0

Jun 28, 2018
06/18

by
Mario Sikic

texts

######
eye 0

######
favorite 0

######
comment 0

In this article we propose a study of market models starting from a set of axioms, as one does in the case of risk measures. We define a market model simply as a mapping from the set of adapted strategies to the set of random variables describing the outcome of trading. We do not make any concavity assumptions. The first result is that under sequential upper-semicontinuity the market model can be represented as a normal integrand. We then extend the concept of no-arbitrage to this setup and...

Topics: Mathematical Finance, General Finance, Quantitative Finance

Source: http://arxiv.org/abs/1512.01758

25
25

Jun 28, 2018
06/18

by
Vygintas Gontis; Shlomo Havlin; Aleksejus Kononovicius; Boris Podobnik; H. Eugene Stanley

texts

######
eye 25

######
favorite 0

######
comment 0

We investigate the volatility return intervals in the NYSE and FOREX markets. We explain previous empirical findings using a model based on the interacting agent hypothesis instead of the widely-used efficient market hypothesis. We derive macroscopic equations based on the microscopic herding interactions of agents and find that they are able to reproduce various stylized facts of different markets and different assets with the same set of model parameters. We show that the power-law properties...

Topics: General Finance, Quantitative Finance, Statistical Finance

Source: http://arxiv.org/abs/1507.05203

4
4.0

Jun 27, 2018
06/18

by
J. L. Subias

texts

######
eye 4

######
favorite 0

######
comment 0

The present paper analyses the formal parallelism existing between the laws of thermodynamics and some economic principles. Based on previous works, we shall show how the existence in Economics of principles analogous to those in thermodynamics involves the occurrence of economic events that remind of well-known phenomenological thermodynamic paradigms (i.e., the magnetocaloric effect and population inversion). We shall also show how the phase transition and renormalization theory provides a...

Topics: General Finance, Quantitative Finance

Source: http://arxiv.org/abs/1505.00471

2
2.0

Jun 27, 2018
06/18

by
Gordon J. Ross

texts

######
eye 2

######
favorite 0

######
comment 0

We investigate the tendency for financial instruments to form clusters when there are multiple factors influencing the correlation structure. Specifically, we consider a stock portfolio which contains companies from different industrial sectors, located in several different countries. Both sector membership and geography combine to create a complex clustering structure where companies seem to first be divided based on sector, with geographical subclusters emerging within each industrial sector....

Topics: Quantitative Finance, Statistical Finance

Source: http://arxiv.org/abs/1505.01550

4
4.0

Jun 27, 2018
06/18

by
Desislava Chetalova; Marcel Wollschläger; Rudi Schäfer

texts

######
eye 4

######
favorite 0

######
comment 0

We study the dependence structure of market states by estimating empirical pairwise copulas of daily stock returns. We consider both original returns, which exhibit time-varying trends and volatilities, as well as locally normalized ones, where the non-stationarity has been removed. The empirical pairwise copula for each state is compared with a bivariate K-copula. This copula arises from a recently introduced random matrix model, in which non-stationary correlations between returns are modeled...

Topics: Quantitative Finance, Statistical Finance

Source: http://arxiv.org/abs/1503.09004

2
2.0

Jun 28, 2018
06/18

by
Dmitry Kramkov; Kim Weston

texts

######
eye 2

######
favorite 0

######
comment 0

In the problem of optimal investment with utility function defined on $(0,\infty)$, we formulate sufficient conditions for the dual optimizer to be a uniformly integrable martingale. Our key requirement consists of the existence of a martingale measure whose density process satisfies the probabilistic Muckenhoupt $(A_p)$ condition for the power $p=1/(1-a)$, where $a\in (0,1)$ is a lower bound on the relative risk-aversion of the utility function. We construct a counterexample showing that this...

Topics: Quantitative Finance, Mathematical Finance

Source: http://arxiv.org/abs/1507.05865

1
1.0

Jun 28, 2018
06/18

by
Simone Farinelli

texts

######
eye 1

######
favorite 0

######
comment 0

Geometric Arbitrage Theory reformulates a generic asset model possibly allowing for arbitrage by packaging all assets and their forwards dynamics into a stochastic principal fibre bundle, with a connection whose parallel transport encodes discounting and portfolio rebalancing, and whose curvature measures, in this geometric language, the "instantaneous arbitrage capability" generated by the market itself. The cashflow bundle is the vector bundle associated to this stochastic principal...

Topics: Quantitative Finance, Mathematical Finance

Source: http://arxiv.org/abs/1509.03264

0
0.0

Jun 28, 2018
06/18

by
Vladimir Vovk

texts

######
eye 0

######
favorite 0

######
comment 0

This paper gives several simple constructions of the pathwise Ito integral $\int_0^t\phi d\omega$ for an integrand $\phi$ and a price path $\omega$ as integrator, with $\phi$ and $\omega$ satisfying various topological and analytical conditions. The definitions are purely pathwise in that neither $\phi$ nor $\omega$ are assumed to be paths of stochastic processes, and the Ito integral exists almost surely in a non-probabilistic financial sense. For example, one of the results shows the...

Topics: Mathematical Finance, Quantitative Finance

Source: http://arxiv.org/abs/1512.01698

1
1.0

Jun 28, 2018
06/18

by
Joao da Gama Batista; Domenico Massaro; Jean-Philippe Bouchaud; Damien Challet; Cars Hommes

texts

######
eye 1

######
favorite 0

######
comment 0

We run experimental asset markets to investigate the emergence of excess trading and the occurrence of synchronised trading activity leading to crashes in the artificial markets. The market environment favours early investment in the risky asset and no posterior trading, i.e. a buy-and-hold strategy with a most probable return of over 600%. We observe that subjects trade too much, and due to the market impact that we explicitly implement, this is detrimental to their wealth. The asset market...

Topics: General Finance, Quantitative Finance

Source: http://arxiv.org/abs/1512.03743

0
0.0

Jun 29, 2018
06/18

by
Sandro Lera; Didier Sornette

texts

######
eye 0

######
favorite 0

######
comment 0

We present a quantitative characterisation of the fluctuations of the annualized growth rate of the real US GDP per capita growth at many scales, using a wavelet transform analysis of two data sets, quarterly data from 1947 to 2015 and annual data from 1800 to 2010. Our main finding is that the distribution of GDP growth rates can be well approximated by a bimodal function associated to a series of switches between regimes of strong growth rate $\rho_\text{high}$ and regimes of low growth rate...

Topics: General Finance, Quantitative Finance

Source: http://arxiv.org/abs/1607.04136

0
0.0

Jun 28, 2018
06/18

by
Rubina Zadourian; Peter Grassberger

texts

######
eye 0

######
favorite 0

######
comment 0

We point out a stunning time asymmetry in the short time cross correlations between intra-day and overnight volatilities (absolute values of log-returns of stock prices). While overnight volatility is significantly (and positively) correlated with the intra-day volatility during the \textit{following} day (allowing thus non-trivial predictions), it is much less correlated with the intra-day volatility during the \textit{preceding} day. While the effect is not unexpected in view of previous...

Topics: Statistical Finance, Quantitative Finance

Source: http://arxiv.org/abs/1509.08079

0
0.0

Jun 28, 2018
06/18

by
Matthew Lorig; Ronnie Sircar

texts

######
eye 0

######
favorite 0

######
comment 0

We study the finite horizon Merton portfolio optimization problem in a general local-stochastic volatility setting. Using model coefficient expansion techniques, we derive approximations for the both the value function and the optimal investment strategy. We also analyze the `implied Sharpe ratio' and derive a series approximation for this quantity. The zeroth-order approximation of the value function and optimal investment strategy correspond to those obtained by Merton (1969) when the risky...

Topics: Quantitative Finance, Computational Finance

Source: http://arxiv.org/abs/1506.06180

3
3.0

Jun 27, 2018
06/18

by
Nikolai Dokuchaev

texts

######
eye 3

######
favorite 0

######
comment 0

We investigate the possibility of statistical evaluation of the market completeness for discrete time stock market models. It is known that the market completeness is not a robust property: small random deviations of the coefficients convert a complete market model into a incomplete one. The paper shows that market incompleteness is also non-robust. We show that, for any incomplete market from a wide class of discrete time models, there exists a complete market model with arbitrarily close...

Topics: Quantitative Finance, Mathematical Finance

Source: http://arxiv.org/abs/1505.00638

1
1.0

Jun 26, 2018
06/18

by
Leonardo Bargigli; Giovanni di Iasio; Luigi Infante; Fabrizio Lillo; Federico Pierobon

texts

######
eye 1

######
favorite 0

######
comment 0

The interbank market is considered one of the most important channels of contagion. Its network representation, where banks and claims/obligations are represented by nodes and links (respectively), has received a lot of attention in the recent theoretical and empirical literature, for assessing systemic risk and identifying systematically important financial institutions. Different types of links, for example in terms of maturity and collateralization of the claim/obligation, can be established...

Topics: General Finance, Quantitative Finance

Source: http://arxiv.org/abs/1501.05751

1
1.0

Jun 27, 2018
06/18

by
Takuji Arai

texts

######
eye 1

######
favorite 0

######
comment 0

We investigate the structure of good deal bounds, which are subintervals of a no-arbitrage pricing bound, for financial market models with convex constraints as an extension of Arai and Fukasawa (2014). The upper and lower bounds of a good deal bound are naturally described by a convex risk measure. We call such a risk measure a good deal valuation; and study its properties. We also discuss superhedging cost and Fundamental Theorem of Asset Pricing for convex constrained markets.

Topics: Quantitative Finance, Mathematical Finance

Source: http://arxiv.org/abs/1506.00396

2
2.0

Jun 29, 2018
06/18

by
Lev B Klebanov

texts

######
eye 2

######
favorite 0

######
comment 0

Failure of the main argument for the use of heavy tailed distribution in Finance is given. More precisely, one cannot observe so many outliers for Cauchy or for symmetric stable distributions as we have in reality. keywords:outliers; financial indexes; heavy tails; Cauchy distribution; stable distributions

Topics: Statistical Finance, Quantitative Finance

Source: http://arxiv.org/abs/1601.00566

1
1.0

Jun 26, 2018
06/18

by
Karl Grosse-Erdmann; Fabien Heuwelyckx

texts

######
eye 1

######
favorite 0

######
comment 0

Refining a discrete model of Cheuk and Vorst we obtain a closed formula for the price of a European lookback option at any time between emission and maturity. We derive an asymptotic expansion of the price as the number of periods tends to infinity, thereby solving a problem posed by Lin and Palmer. We prove, in particular, that the price in the discrete model tends to the price in the continuous Black-Scholes model. Our results are based on an asymptotic expansion of the binomial cumulative...

Topics: Quantitative Finance, Mathematical Finance

Source: http://arxiv.org/abs/1502.02819

4
4.0

Jun 27, 2018
06/18

by
Wanfeng Yan; Edgar van Tuyll van Serooskerken

texts

######
eye 4

######
favorite 0

######
comment 0

Investors in stock market are usually greedy during bull markets and scared during bear markets. The greed or fear spreads across investors quickly. This is known as the herding effect, and often leads to a fast movement of stock prices. During such market regimes, stock prices change at a super-exponential rate and are normally followed by a trend reversal that corrects the previous over reaction. In this paper, we construct an indicator to measure the magnitude of the super-exponential growth...

Topics: General Finance, Quantitative Finance

Source: http://arxiv.org/abs/1505.04060

3
3.0

Jun 27, 2018
06/18

by
Noemi Nava; T. Di Matteo; Tomaso Aste

texts

######
eye 3

######
favorite 0

######
comment 0

Volatility of intra-day stock market indices computed at various time horizons exhibits a scaling behaviour that differs from what would be expected from fractional Brownian motion (fBm). We investigate this anomalous scaling by using empirical mode decomposition (EMD), a method which separates time series into a set of cyclical components at different time-scales. By applying the EMD to fBm, we retrieve a scaling law that relates the variance of the components to a power law of the oscillating...

Topics: Quantitative Finance, Computational Finance

Source: http://arxiv.org/abs/1503.08465

1
1.0

Jun 27, 2018
06/18

by
Vadim Nastasiuk

texts

######
eye 1

######
favorite 0

######
comment 0

The probability distribution function (PDF) for prices on financial markets is derived by extremization of Fisher information. It is shown how on that basis the quantum-like description for financial markets arises and different financial market models are mapped by quantum mechanical ones.

Topics: Quantitative Finance, Statistical Finance

Source: http://arxiv.org/abs/1504.03822

0
0.0

Jun 28, 2018
06/18

by
James Risk; Michael Ludkovski

texts

######
eye 0

######
favorite 0

######
comment 0

We propose the use of statistical emulators for the purpose of valuing mortality-linked contracts in stochastic mortality models. Such models typically require (nested) evaluation of expected values of nonlinear functionals of multi-dimensional stochastic processes. Except in the simplest cases, no closed-form expressions are available, necessitating numerical approximation. Rather than building ad hoc analytic approximations, we advocate the use of modern statistical tools from machine...

Topics: Quantitative Finance, Statistical Finance

Source: http://arxiv.org/abs/1508.00310

3
3.0

Jun 28, 2018
06/18

by
Jordan Mann; J. Nathan Kutz

texts

######
eye 3

######
favorite 0

######
comment 0

We demonstrate the application of an algorithmic trading strategy based upon the recently developed dynamic mode decomposition (DMD) on portfolios of financial data. The method is capable of characterizing complex dynamical systems, in this case financial market dynamics, in an equation-free manner by decomposing the state of the system into low-rank terms whose temporal coefficients in time are known. By extracting key temporal coherent structures (portfolios) in its sampling window, it...

Topics: Quantitative Finance, Computational Finance

Source: http://arxiv.org/abs/1508.04487

0
0.0

Jun 28, 2018
06/18

by
Wei Lin; Shenghong Li; Xingguo Luo; Shane Chern

texts

######
eye 0

######
favorite 0

######
comment 0

In this paper, we develop a 4/2 stochastic volatility plus jumps model, namely, a new stochastic volatility model including the Heston model and 3/2 model as special cases. Our model is highly tractable by applying the Lie symmetries theory for PDEs, which means that the pricing procedure can be performed efficiently. In fact, we obtain a closed-form solution for the joint Fourier-Laplace transform so that equity and realized-variance derivatives can be priced. We also employ our model to...

Topics: Computational Finance, Quantitative Finance

Source: http://arxiv.org/abs/1510.01172

2
2.0

Jun 28, 2018
06/18

by
Liang Wu; Lei Zhang; Zhiming Fu

texts

######
eye 2

######
favorite 0

######
comment 0

In this paper, we develop a theory of market crashes resulting from a deleveraging shock. We consider two representative investors in a market holding different opinions about the public available information. The deleveraging shock forces the high confidence investors to liquidate their risky assets to pay back their margin loans. When short sales are constrained, the deleveraging shock creates a liquidity vacuum in which no trades can occur between the two representative investors until the...

Topics: General Finance, Quantitative Finance

Source: http://arxiv.org/abs/1511.03777

0
0.0

Jun 28, 2018
06/18

by
Gechun Liang; Thaleia Zariphopoulou

texts

######
eye 0

######
favorite 0

######
comment 0

In an incomplete market, with incompleteness stemming from stochastic factors imperfectly correlated with the underlying stocks, we derive representations of homothetic (power, exponential and logarithmic) forward performance processes in factor-form using ergodic BSDE. We also develop a connection between the forward processes and infinite horizon BSDE, and, moreover, with risk-sensitive optimization. In addition, we develop a connection, for large time horizons, with a family of classical...

Topics: Mathematical Finance, Quantitative Finance

Source: http://arxiv.org/abs/1511.04863

0
0.0

Jun 27, 2018
06/18

by
Anna Aksamit; Tahir Choulli; Jun Deng; Monique Jeanblanc

texts

######
eye 0

######
favorite 0

######
comment 0

This paper completes the two studies undertaken in \cite{aksamit/choulli/deng/jeanblanc2} and \cite{aksamit/choulli/deng/jeanblanc3}, where the authors quantify the impact of a random time on the No-Unbounded-Risk-with-Bounded-Profit concept (called NUPBR hereafter) when the stock price processes are quasi-left-continuous (do not jump on predictable stopping times). Herein, we focus on the NUPBR for semimartingales models that live on thin predictable sets only and the progressive enlargement...

Topics: Quantitative Finance, Mathematical Finance

Source: http://arxiv.org/abs/1505.00997

0
0.0

Jun 28, 2018
06/18

by
Mauricio Contreras; Alejandro Llanquihuén; Marcelo Villena

texts

######
eye 0

######
favorite 0

######
comment 0

In this paper, we study the multi-asset Black-Scholes model in terms of the importance that the correlation parameter space (equivalent to an $N$ dimensional hypercube) has in the solution of the pricing problem. We show that inside of this hypercube there is a surface, called the Kummer surface $\Sigma_K$, where the determinant of the correlation matrix $\rho$ is zero, so the usual formula for the propagator of the $N$ asset Black-Scholes equation is no longer valid. Worse than that, in some...

Topics: Mathematical Finance, Quantitative Finance

Source: http://arxiv.org/abs/1510.02768

0
0.0

Jun 28, 2018
06/18

by
Jacopo Mancin; Wolfgang J. Runggaldier

texts

######
eye 0

######
favorite 0

######
comment 0

In the context of jump-diffusion market models we construct examples that satisfy the weaker no-arbitrage condition of NA1 (NUPBR), but not NFLVR. We show that in these examples the only candidate for the density process of an equivalent local martingale measure is a supermartingale that is not a martingale, not even a local martingale. This candidate is given by the supermartingale deflator resulting from the inverse of the discounted growth optimal portfolio. In particular, we con- sider an...

Topics: Mathematical Finance, Quantitative Finance

Source: http://arxiv.org/abs/1511.08349

2
2.0

Jun 28, 2018
06/18

by
Philipp Harms; David Stefanovits; Josef Teichmann; Mario V. Wüthrich

texts

######
eye 2

######
favorite 0

######
comment 0

The discrete-time multifactor Vasi\v{c}ek model is a tractable Gaussian spot rate model. Typically, two- or three-factor versions allow one to capture the dependence structure between yields with different times to maturity in an appropriate way. In practice, re-calibration of the model to the prevailing market conditions leads to model parameters that change over time. Therefore, the model parameters should be understood as being time-dependent or even stochastic. Following the consistent...

Topics: Mathematical Finance, Quantitative Finance

Source: http://arxiv.org/abs/1512.06454

1
1.0

Jun 27, 2018
06/18

by
Natasa Golo; Guy Kelman; David S. Bree; Leanne Usher; Marco Lamieri; Sorin Solomon

texts

######
eye 1

######
favorite 0

######
comment 0

We propose a novel approach and an empirical procedure to test direct contagion of growth rate in a trade credit network of firms. Our hypotheses are that the use of trade credit contributes to contagion (from many customers to a single supplier - "many to one" contagion) and amplification (through their interaction with the macrocopic variables, such as interest rate) of growth rate. In this paper we test the contagion hypothesis, measuring empirically the mesoscopic...

Topics: General Finance, Quantitative Finance

Source: http://arxiv.org/abs/1506.01734

8
8.0

Jun 26, 2018
06/18

by
Archil Gulisashvili; Frederi Viens; Xin Zhang

texts

######
eye 8

######
favorite 0

######
comment 0

We consider a stochastic volatility asset price model in which the volatility is the absolute value of a continuous Gaussian process with arbitrary prescribed mean and covariance. By exhibiting a Karhunen-Lo\`{e}ve expansion for the integrated variance, and using sharp estimates of the density of a general second-chaos variable, we derive asymptotics for the asset price density for large or small values of the variable, and study the wing behavior of the implied volatility in these models. Our...

Topics: Quantitative Finance, Mathematical Finance

Source: http://arxiv.org/abs/1502.05442

1
1.0

Jun 27, 2018
06/18

by
Raul Merino; Josep Vives

texts

######
eye 1

######
favorite 0

######
comment 0

We obtain a decomposition of the call option price for a very general stochastic volatility diffusion model extending the decomposition obtained by E. Al\`os in [2] for the Heston model. We realize that a new term arises when the stock price does not follow an exponential model. The techniques used are non anticipative. In particular, we see also that equivalent results can be obtained using Functional It\^o Calculus. Using the same generalizing ideas we also extend to non exponential models...

Topics: Quantitative Finance, Mathematical Finance

Source: http://arxiv.org/abs/1503.08119

1
1.0

Jun 26, 2018
06/18

by
Rohini Kumar

texts

######
eye 1

######
favorite 0

######
comment 0

In this article, we look at the effect of volatility clustering on the risk indifference price of options described by Sircar and Sturm in their paper (Sircar, R., & Sturm, S. (2012). From smile asymptotics to market risk measures. Mathematical Finance. Advance online publication. doi:10.1111/mafi.12015). The indifference price in their article is obtained by using dynamic convex risk measures given by backward stochastic differential equations. Volatility clustering is modelled by a fast...

Topics: Mathematical Finance, Quantitative Finance

Source: http://arxiv.org/abs/1501.04548

2
2.0

Jun 27, 2018
06/18

by
Jozef Barunik; Barbora Malinska

texts

######
eye 2

######
favorite 0

######
comment 0

The paper contributes to the rare literature modeling term structure of crude oil markets. We explain term structure of crude oil prices using dynamic Nelson-Siegel model, and propose to forecast them with the generalized regression framework based on neural networks. The newly proposed framework is empirically tested on 24 years of crude oil futures prices covering several important recessions and crisis periods. We find 1-month, 3-month, 6-month and 12-month-ahead forecasts obtained from...

Topics: Quantitative Finance, General Finance

Source: http://arxiv.org/abs/1504.04819

6
6.0

Jun 28, 2018
06/18

by
Ramin Okhrati; Uwe Schmock

texts

######
eye 6

######
favorite 0

######
comment 0

Extending It\^o's formula to non-smooth functions is important both in theory and applications. One of the fairly general extensions of the formula, known as Meyer-It\^o, applies to one dimensional semimartingales and convex functions. There are also satisfactory generalizations of It\^o's formula for diffusion processes where the Meyer-It\^o assumptions are weakened even further. We study a version of It\^o's formula for multi-dimensional finite variation L\'evy processes assuming that the...

Topics: Quantitative Finance, Mathematical Finance

Source: http://arxiv.org/abs/1507.00294

2
2.0

Jun 28, 2018
06/18

by
Valerii Salov

texts

######
eye 2

######
favorite 0

######
comment 0

The prospects of Kahneman and Tversky, Mega Million and Powerball lotteries, St. Petersburg paradox, premature profits and growing losses criticized by Livermore are reviewed under an angle of view comparing mathematical expectations with awards received. Original prospects have been formulated as a one time opportunity. An award value depends on the number of times the game is played. The random sample mean is discussed as a universal award. The role of time in making a risky decision is...

Topics: General Finance, Quantitative Finance

Source: http://arxiv.org/abs/1512.08792

15
15

Jun 27, 2018
06/18

by
Andrzej Daniluk; Rafał Muchorski

texts

######
eye 15

######
favorite 0

######
comment 0

We derive semi-analytic approximation formulae for bond and swaption prices in a Black-Karasi\'{n}ski interest rate model. Approximations are obtained using a novel technique based on the Karhunen-Lo\`{e}ve expansion. Formulas are easily computable and prove to be very accurate in numerical tests. This makes them useful for numerically efficient calibration of the model.

Topics: Quantitative Finance, Computational Finance

Source: http://arxiv.org/abs/1506.00697

13
13

Jun 28, 2018
06/18

by
Richard Pinčák; Erik Bartoš

texts

######
eye 13

######
favorite 0

######
comment 0

Overwhelming majority of econometric models applied on a long term basis in the financial forex market do not work sufficiently well. The reason is that transaction costs and arbitrage opportunity are not included, as this does not simulate the real financial markets. Analyses are not conducted on the non equidistant date but rather on the aggregate date, which is also not a real financial case. In this paper, we would like to show a new way how to analyze and, moreover, forecast financial...

Topics: Statistical Finance, Quantitative Finance

Source: http://arxiv.org/abs/1511.00483

7
7.0

Jun 28, 2018
06/18

by
Vladislav Gennadievich Malyshkin; Ray Bakhramov

texts

######
eye 7

######
favorite 0

######
comment 0

We postulates, and then show experimentally, that liquidity deficit is the driving force of the markets. In the first part of the paper a kinematic of liquidity deficit is developed. The calculus-like approach, which is based on Radon--Nikodym derivatives and their generalization, allows us to calculate important characteristics of observable market dynamics. In the second part of the paper this calculus is used in an attempt to build a dynamic equation in the form: future price tend to the...

Topics: Computational Finance, Quantitative Finance

Source: http://arxiv.org/abs/1510.05510

22
22

Jun 27, 2018
06/18

by
Michael V. Klibanov; Andrey V. Kuzhuget

texts

######
eye 22

######
favorite 0

######
comment 0

A new mathematical model for the Black-Scholes equation is proposed to forecast option prices. This model includes new interval for the price of the underlying stock as well as new initial and boundary conditions. Conventional notions of maturity time and strike prices are not used. The Black-Scholes equation is solved as a parabolic equation with the reversed time, which is an ill-posed problem. Thus, a regularization method is used to solve it. This idea is verified on real market data for...

Topics: Quantitative Finance, Mathematical Finance

Source: http://arxiv.org/abs/1503.03567

4
4.0

Jun 28, 2018
06/18

by
Li Lin; Didier Sornette

texts

######
eye 4

######
favorite 0

######
comment 0

We introduce the Speculative Influence Network (SIN) to decipher the causal relationships between sectors (and/or firms) during financial bubbles. The SIN is constructed in two steps. First, we develop a Hidden Markov Model (HMM) of regime-switching between a normal market phase represented by a geometric Brownian motion (GBM) and a bubble regime represented by the stochastic super-exponential Sornette-Andersen (2002) bubble model. The calibration of the HMM provides the probability at each...

Topics: Statistical Finance, Quantitative Finance

Source: http://arxiv.org/abs/1510.08162