Related papers: Smile dynamics -- a theory of the implied leverage…
The valuation process that economic agents undergo for investments with uncertain payoff typically depends on their statistical views on possible future outcomes, their attitudes toward risk, and, of course, the payoff structure itself.…
We investigate the general problem of how to model the kinematics of stock prices without considering the dynamical causes of motion. We propose a stochastic process with long-range correlated absolute returns. We find that the model is…
Properties of distributions of the number of trades in different intraday time intervals for five stocks traded in MICEX are studied. The dependence of the mean number of trades on the capital turnover is analyzed. Correlation analysis…
In this work we study spin-glass (SG) like behavior in the dynamics of multiple agents in a social or economic context using interactions which are similar to the physical case. The different preferences shown by individual agents are…
High frequency data in finance have led to a deeper understanding on probability distributions of market prices. Several facts seem to be well stablished by empirical evidence. Specifically, probability distributions have the following…
This paper describes the dependence of market-based statistical moments of returns on statistical moments and correlations of the current and past trade values. We use Markowitz's definition of value weighted return of a portfolio as the…
We consider a financial model with permanent price impact. Continuous time trading dynamics are derived as the limit of discrete rebalancing policies. We then study the problem of super-hedging a European option. Our main result is the…
Agent-based models help explain stock price dynamics as emergent phenomena driven by interacting investors. In this modeling tradition, investor behavior has typically been captured by two distinct mechanisms -- learning and heterogeneous…
Stock prices move as piece-wise trending fluctuation rather than a purely random walk. Traditionally, the prediction of future stock movements is based on the historical trading record. Nowadays, with the development of social media, many…
In the current literature, the analytical tractability of discrete time option pricing models is guaranteed only for rather specific types of models and pricing kernels. We propose a very general and fully analytical option pricing…
We show that typical behaviors of market participants at the high frequency scale generate leverage effect and rough volatility. To do so, we build a simple microscopic model for the price of an asset based on Hawkes processes. We encode in…
This paper examines customer momentum, defined as a positive relationship between a firm's returns and past returns of its customers. I confirm previous evidence (Cohen and Frazzini 2008) that customer momentum is both statistically and…
The emergence of the modern gig economy introduces a new set of employment considerations for firms and laborers that include various trade-offs. With a game-theoretical approach, we examine the influences of technology, policy and markets…
This study investigates the short-term asymptotic behavior of the implied volatility surface (IVS), with a particular focus on the at-the-money (ATM) skew and curvature, which are key determinants of the IVS shape and whose are widely…
We discuss modelling of SPX and DAX index option prices using the Shifted Log-Normal (SLN) model, (also known as Displaced Diffusion), and the SABR model. We found out that for SPX options, an example of strongly skewed option prices, SLN…
This work focuses on the dynamic hedging of financial derivatives, where a reinforcement learning algorithm is designed to minimize the variance of the delta hedging process. In contrast to previous research in this area, we apply…
How do macro-financial shocks affect investor behavior and market dynamics? Recent evidence on experience effects suggests a long-lasting influence of personally experienced outcomes on investor beliefs and investment, but also significant…
In some options markets (e.g. commodities), options are listed with only a single maturity for each underlying. In others, (e.g. equities, currencies), options are listed with multiple maturities. In this paper, we provide an algorithm for…
As is widely known, the stock market is a complex system in which a multitude of factors influence the performance of individual stocks and the market as a whole. One method for comprehending -- and potentially predicting -- stock market…
This paper discusses a novel explanation for asymmetric volatility based on the anchoring behavioral pattern. Anchoring as a heuristic bias causes investors focusing on recent price changes and price levels, which two lead to a belief in…