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Sophisticated machine learning (ML) models to inform trading in the financial sector create problems of interpretability and risk management. Seemingly robust forecasting models may behave erroneously in out of distribution settings. In…
The paper studies problem of continuous time optimal portfolio selection for a incom- plete market diffusion model. It is shown that, under some mild conditions, near optimal strategies for investors with different performance criteria can…
Spreadsheets are widely used in industry, even for critical business processes. This implies the need for proper risk assessment in spreadsheets to evaluate the reliability and validity of the spreadsheet's outcome. As related research has…
Simulation methods have always been instrumental in finance, and data-driven methods with minimal model specification, commonly referred to as generative models, have attracted increasing attention, especially after the success of deep…
Recently, in order to explore the mechanism behind wealth or income distribution, several models have been proposed by applying principles of statistical mechanics. These models share some characteristics, such as consisting of a group of…
This paper discusses serious drawbacks of existing knowledge in macroeconomics and finance in explaining and predicting economic and financial phenomena. Complexity science is proposed as an alternative approach to be used in order to…
In this note we sketch an initial tentative approach to funding costs analysis and management for contracts with bilateral counterparty risk in a simplified setting. We depart from the existing literature by analyzing the issue of funding…
This study provides a practical introduction to high-frequency trading in blockchain-based currency markets. These types of markets have some specific characteristics that differentiate them from the stock markets, such as a large number of…
The downside risk of a portfolio of (equity)assets is generally substantially higher than the downside risk of its components. In particular in times of crises when assets tend to have high correlation, the understanding of this difference…
In this paper we state the fundamental principles of the gauge approach to financial economics and demonstrate the ways of its application. In particular, modelling of realistic price processes is considered for an example of S&P500 market…
Recent work on algorithmic fairness has largely focused on the fairness of discrete decisions, or classifications. While such decisions are often based on risk score models, the fairness of the risk models themselves has received…
Estimating and controlling large risks has become one of the main concern of financial institutions. This requires the development of adequate statistical models and theoretical tools (which go beyond the traditionnal theories based on…
Big data, both in its structured and unstructured formats, have brought in unforeseen challenges in economics and business. How to organize, classify, and then analyze such data to obtain meaningful insights are the ever-going research…
Factor modeling of asset returns has been a dominant practice in investment science since the introduction of the Capital Asset Pricing Model (CAPM) and the Arbitrage Pricing Theory (APT). The factors, which account for the systematic risk,…
Multifractality is ubiquitously observed in complex natural and socioeconomic systems. Multifractal analysis provides powerful tools to understand the complex nonlinear nature of time series in diverse fields. Inspired by its striking…
The question of pricing and hedging a given contingent claim has a unique solution in a complete market framework. When some incompleteness is introduced, the problem becomes however more difficult. Several approaches have been adopted in…
We consider an equity-linked contract whose payoff depends on the lifetime of policy holder and the stock price. We assume the limited capital for hedging and we provide with the best strategy for an insurance company in the meaning of so…
This paper examines the possibility of using derivative-implied risk premia to explain stock returns. The rapid development of derivative markets has led to the possibility of trading various kinds of risks, such as credit and interest rate…
In this paper we develop a novel methodology for estimation of risk capital allocation. The methodology is rooted in the theory of risk measures. We work within a general, but tractable class of law-invariant coherent risk measures, with a…
Recently, our group has published two papers that have received some attention in the finance community. One is about the profitability of trend following strategies over 200 years, the second is about the correlation between the…