Related papers: A note on wealth in a volatile economy
We consider a portfolio optimisation problem for a utility-maximising investor who faces convex constraints on his portfolio allocation in Heston's stochastic volatility model. We apply the duality methods developed in previous work to…
We develop a statistical framework for wealth allocation in which agents hold discrete units of wealth and macrostates are defined by how wealth is distributed across agents. The structure of the economic state space is characterized…
Risk and utility functionals are fundamental building blocks in economics and finance. In this paper we investigate under which conditions a risk or utility functional is sensitive to the accumulation of losses in the sense that any…
An econometric or statistical model may undergo a marginal gain if we admit a new variable to the model, and a marginal loss if we remove an existing variable from the model. Assuming equality of opportunity among all candidate variables,…
This note develops a stochastic model of asset volatility. The volatility obeys a continuous-time autoregressive equation. Conditions under which the process is asymptotically stationary and possesses long memory are characterised.…
Linear stochastic models and discretized kinetic theory are two complementary analytical techniques used for the investigation of complex systems of economic interactions. The former employ Langevin equations, with an emphasis on stock…
The consumption function maps current wealth and the exogenous state to current consumption. We prove the existence and uniqueness of a consumption function when the agent has a preference for wealth. When the period utility functions are…
Constant and symmetric price impact functions, most commonly used in agent-based market modelling, are shown to give rise to paradoxical and inconsistent outcomes in the simplest case of arbitrage exploitation when open-hold-close actions…
We revisit optimal execution of an active portfolio in the presence of slippage (aka linear, proportional, or absolute-value) costs. Market efficiency implies a close balance between active alphas and trading costs, so even small changes to…
We study a system of $N$ agents, whose wealth grows linearly, under the effect of stochastic resetting and interacting via a tax-like dynamics -- all agents donate a part of their wealth, which is, in turn, redistributed equally among all…
Rough volatility is a well-established statistical stylised fact of financial assets. This property has lead to the design and analysis of various new rough stochastic volatility models. However, most of these developments have been carried…
We consider the following problem in stochastic portfolio theory. Are there portfolios that are relative arbitrages with respect to the market portfolio over very short periods of time under realistic assumptions? We answer a slightly…
This article derives prognostic expressions for the evolution of globally aggregated economic wealth, productivity, inflation, technological change, innovation and growth. The approach is to treat civilization as an open, non-equilibrium…
In the seminal work [9], several macroscopic market observables have been introduced, in an attempt to find characteristics capturing the diversity of a financial market. Despite the crucial importance of such observables for investment…
Demand estimation plays an important role in dynamic pricing where the optimal price can be obtained via maximizing the revenue based on the demand curve. In online hotel booking platform, the demand or occupancy of rooms varies across…
We propose a novel kinetic exchange model differing from previous ones in two main aspects. First, the basic dynamics is modified in order to represent economies where immediate wealth exchanges are carried out, instead of reshufflings or…
Both inflation and unemployment inflict social losses. When a tradeoff exists between the two, what would be the best combination of inflation and unemployment? A well known approach in economics to address this question consists to write…
The collateral choice option allows a collateral-posting party the opportunity to change the type of security in which the collateral is deposited. Due to non-zero collateral basis spreads, this optionality significantly impacts asset…
In the classical model of stock prices which is assumed to be Geometric Brownian motion, the drift and the volatility of the prices are held constant. However, in reality, the volatility does vary. In quantitative finance, the Heston model…
Market-based mechanisms such as auctions are being studied as an appropriate means for resource allocation in distributed and mulitagent decision problems. When agents value resources in combination rather than in isolation, they must often…