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Empirical evidence suggests that fixed income markets exhibit unspanned stochastic volatility (USV), that is, that one cannot fully hedge volatility risk solely using a portfolio of bonds. While [1] showed that no two-factor…
We propose a novel two-stage framework to detect lead-lag relationships in the Chinese A-share market. First, long-term coupling between stocks is measured via daily data using correlation, dynamic time warping, and rank-based metrics.…
Large and stable indices of the world wide stock markets such as NYSE and SP 500 together with NASDAQ -- the index representing markets of new trends, and WIG -- the index of the local stock market of Eastern Europe, are considered. Due to…
We are interested in the asymptotic behavior of Markov chains on the set of positive integers for which, loosely speaking, large jumps are rare and occur at a rate that behaves like a negative power of the current state, and such that small…
Using a recently introduced method to quantify the time varying lead-lag dependencies between pairs of economic time series (the thermal optimal path method), we test two fundamental tenets of the theory of fixed income: (i) the stock…
We investigate the average frequency of positive slope $\nu_{\alpha}^{+}$, crossing for the returns of market prices. The method is based on stochastic processes which no scaling feature is explicitly required. Using this method we define…
This paper studies pairs trading using a nonlinear and non-Gaussian state-space model framework. We model the spread between the prices of two assets as an unobservable state variable and assume that it follows a mean-reverting process.…
Methods for detecting structural changes, or change points, in time series data are widely used in many fields of science and engineering. This chapter sketches some basic methods for the analysis of structural changes in time series data.…
An active margin system for margin loans is proposed for Chinese margin lending market, which uses cash and randomly selected stock as collateral. The conditional probability of negative return(CPNR) after a forced sale of securities from…
We present a relatively detailed analysis of the persistence probability distributions in financial dynamics. Compared with the auto-correlation function, the persistence probability distributions describe dynamic correlations non-local in…
An empirical algorithm is used here to study the stochastic and multifractal nature of nonlinear time series. A parameter can be defined to quantitatively measure the deviation of the time series from a Wiener process so that the…
This paper considers non-negative integer-valued autoregressive processes where the autoregression parameter is close to unity. We consider the asymptotics of this `near unit root' situation. The local asymptotic structure of the likelihood…
Predicting the prices of stocks at any stock market remains a quest for many investors and researchers. Those who trade at the stock market tend to use technical, fundamental or time series analysis in their predictions. These methods…
While traditional equity factor investing relies heavily on slow-moving fundamental accounting metrics, these models frequently suffer from factor crowding and miss real-time, sentiment-driven market dislocations. This study explores how…
A joint conditional autoregressive expectile and Expected Shortfall framework is proposed. The framework is extended through incorporating a measurement equation which models the contemporaneous dependence between the realized measures and…
Previous analysis on forecasting theory either assume knowing the true parameters or assume the stationarity of the series. Not much are known on the forecasting theory for nonstationary process with estimated parameters. This paper…
We study the high frequency price dynamics of traded stocks by a model of returns using a semi-Markov approach. More precisely we assume that the intraday return are described by a discrete time homogeneous semi-Markov process and the…
Using Monte Carlo methods, the short-time dynamic scaling behaviour of two-dimensional critical XY systems is investigated. Our results for the XY model show that there exists universal scaling behaviour already in the short-time regime,…
Financial markets are a classical example of complex systems as they comprise many interacting stocks. As such, we can obtain a surprisingly good description of their structure by making the rough simplification of binary daily returns.…
The efficiency of the stock market has a significant impact on the potential return on investment. An efficient market eliminates the possibility of arbitrage and unexploited profit opportunities. This study analyzes the weak form…