Related papers: Leverage Causes Fat Tails and Clustered Volatility
We amend and extend the Chiarella model of financial markets to deal with arbitrary long-term value drifts in a consistent way. This allows us to improve upon existing calibration schemes, opening the possibility of calibrating individual…
Volatility is a natural risk measure in finance as it quantifies the variation of stock prices. A frequently considered problem in mathematical finance is to forecast different estimates of volatility. What makes it promising to use deep…
Volatility is the canonical measure of financial risk, a role largely inherited from Modern Portfolio Theory. Yet, its universality rests on restrictive efficiency assumptions that render volatility, at best, an incomplete proxy for true…
Market confidence is essential for successful investing. By incorporating multi-market into the evolutionary minority game, we investigate the effects of investor beliefs on the evolution of collective behaviors and asset prices. When there…
Barrier derivatives depend on extrema and first-passage events and are therefore highly sensitive to volatility dynamics -- especially to the instantaneous return-volatility correlation $\rho$, often called ``leverage''. This sensitivity…
Assuming frictionless trading, classical stochastic portfolio theory (SPT) provides relative arbitrage strategies. However, the costs associated with real-world execution are state-dependent, volatile, and under increasing stress during…
For a risk vector $V$, whose components are shared among agents by some random mechanism, we obtain asymptotic lower and upper bounds for the individual agents' exposure risk and the aggregated risk in the market. Risk is measured by…
The variance measures the portfolio risks the investors are taking. The investor, who holds his portfolio and doesn't trade his shares, at the current time can use the time series of the market trades that were made during the averaging…
In this paper, I examine why some firms have zero leverage. I fail to find evidence that firms are unlevered because of managerial entrenchment since these firms do not have weaker corporate governance. I reject the hypothesis that firms…
A non-fungible token (NFT) market is a new trading invention based on the blockchain technology which parallels the cryptocurrency market. In the present work we study capitalization, floor price, the number of transactions, the…
This paper aims to more effectively manage and mitigate stock market risks by accurately characterizing financial market returns and volatility. We enhance the Stochastic Volatility (SV) model by incorporating fat-tailed distributions and…
In this paper we use Clustering Method to understand whether stock market volatility can be predicted at all, and if so, when it can be predicted. The exercise has been performed for the Indian stock market on daily data for two years. For…
The Generalized Lotka Voltera (GLV) formalism has been introduced in order to explain the power law distributions in the individual wealth (w_i (t)) (Pareto law) and financial markets returns (fluctuations) (r) as a result of the…
Volatility clustering is a common phenomenon in financial time series. Typically, linear models can be used to describe the temporal autocorrelation of the (logarithmic) variance of returns. Considering the difficulty in estimating this…
A microscopic model of financial markets is considered, consisting of many interacting agents (spins) with global coupling and discrete-time thermal bath dynamics, similar to random Ising systems. The interactions between agents change…
The principal portfolios of the standard Capital Asset Pricing Model (CAPM) are analyzed and found to have remarkable hedging and leveraging properties. Principal portfolios implement a recasting of any correlated asset set of N risky…
We propose a frustrated and disordered many-body model of a stockmarket in which independent adaptive traders can trade a stock subject to the economic law of supply and demand. We show that the typical scaling properties and the correlated…
Scaling properties in financial fluctuations are reviewed from the standpoint of statistical physics. We firstly show theoretically that the balance of demand and supply enhances fluctuations due to the underlying phase transition…
It is suggested to consider long term trends of financial markets as a growth phenomenon. The question that is asked is what conditions are needed for a long term sustainable growth or contraction in a financial market? The paper discuss…
We show that the frequent claim that the implied tree prices exotic options consistently with the market is untrue if the local volatilities are subject to change and the market is arbitrage-free. In the process, we analyse -- in the most…