Quantitative Finance
In this paper we study optimal trading strategies in a financial market in which stock returns depend on a hidden Gaussian mean reverting drift process. Investors obtain information on that drift by observing stock returns. Moreover, expert…
In this paper, we study dependence uncertainty and the resulting effects on tail risk measures, which play a fundamental role in modern risk management. We introduce the notion of a regular dependence measure, defined on multi-marginal…
Capital allocation is a procedure for quantifying the contribution of each source of risk to aggregated risk. The gradient allocation rule, also known as the Euler principle, is a prevalent rule of capital allocation under which the…
In this paper we introduce a generalized extension of the Eisenberg-Noe model of financial contagion to allow for time dynamics of the interbank liabilities, including a dynamic examination of default risk. This framework separates the cash…
This study focuses on building an algorithmic investment strategy employing a hybrid approach that combines LSTM and ARIMA models referred to as LSTM-ARIMA. This unique algorithm uses LSTM to produce final predictions but boosts the results…
Alphas are pivotal in providing signals for quantitative trading. The industry highly values the discovery of formulaic alphas for their interpretability and ease of analysis, compared with the expressive yet overfitting-prone black-box…
We analyze correlation structures in financial markets by coarse graining the Pearson correlation matrices according to market sectors to obtain Guhr matrices using Guhr's correlation method according to Ref. [P. Rinn {\it et. al.},…
Returns distributions are heavy-tailed across asset classes. In this note, I examine the implications of this well-known stylized fact for the joint statistics of performance (absolute return) and Sharpe ratio (risk-adjusted return). Using…
We propose a reinforcement learning (RL) approach to model optimal exercise strategies for option-type products. We pursue the RL avenue in order to learn the optimal action-value function of the underlying stopping problem. In addition to…
We study the impact of regulatory capital constraints on fire sales and financial stability in a large banking system using a mean field game model. In our model banks adjust their holdings of a risky asset via trading strategies with…
The scope for the accurate calculation of the Loss Given Default (LGD) parameter is comprehensive in terms of financial data. In this research, we aim to explore methods for improving the approximation of realized LGD in conditions of…
Mean-reverting behavior of individuals assets is widely known in financial markets. In fact, we can construct a portfolio that has mean-reverting behavior and use it in trading strategies to extract profits. In this paper, we show that we…
Whereas traditional credit scoring tends to employ only individual borrower- or loan-level predictors, it has been acknowledged for some time that connections between borrowers may result in default risk propagating over a network. In this…
In this study, we introduce a physical model inspired by statistical physics for predicting price volatility and expected returns by leveraging Level 3 order book data. By drawing parallels between orders in the limit order book and…
We present an actor-critic-type reinforcement learning algorithm for solving the problem of hedging a portfolio of financial instruments such as securities and over-the-counter derivatives using purely historic data. The key characteristics…
Cyclic arbitrage chances exist abundantly among decentralized exchanges (DEXs), like Uniswap V2. For an arbitrage cycle (loop), researchers or practitioners usually choose a specific token, such as Ether as input, and optimize their input…
In decentralized exchanges (DEXs), the arbitrage paths exist abundantly in the form of both arbitrage loops (e.g. the arbitrage path starts from token A and back to token A again in the end, A, B,..., A) and non-loops (e.g. the arbitrage…
The skew-stickiness-ratio (SSR), examined in detail by Bergomi in his book, is critically important to options traders, especially market makers. We present a model-free expression for the SSR in terms of the characteristic function. In the…
Experimentation involves risk. The investigator expends time and money in the pursuit of data that supports a hypothesis. In the end, the investigator may find that all of these costs were for naught and the data fail to reject the null.…
Machine learning techniques applied to the problem of financial market forecasting struggle with dynamic regime switching, or underlying correlation and covariance shifts in true (hidden) market variables. Drawing inspiration from the…