Related papers: Introduction into "Local Correlation Modelling"
The cryptocurrency market is volatile, non-stationary and non-continuous. Together with liquid derivatives markets, this poses a unique opportunity to study risk management, especially the hedging of options, in a turbulent market. We study…
It is commonly believed that the correlations between stock returns increase in high volatility periods. We investigate how much of these correlations can be explained within a simple non-Gaussian one-factor description with time…
In this paper we introduce a new approach to model-free path-dependent option pricing. We first introduce a general duality result for linear optimisation problems over signed measures introduced in [3] and show how the the problem of…
Financial markets exhibit complex dynamics where localized events trigger ripple effects across entities. Previous event studies, constrained by static single-company analyses and simplistic assumptions, fail to capture these ripple…
The increasing adoption of Digital Assets (DAs), such as Bitcoin (BTC), rises the need for accurate option pricing models. Yet, existing methodologies fail to cope with the volatile nature of the emerging DAs. Many models have been proposed…
The global balance is a well-known indicator of the behavior of a signed network. Recent literature has introduced the concept of local balance as a measure of the contribution of a single node to the overall balance of the network. In the…
We start with the idea that open quantum systems can be used to represent financial markets by modelling events from the external environment and their impact on the market price. We show how to characterize distinct orbits of the time…
Financial networks based on Pearson correlations have been intensively studied. However, previous studies may have led to misleading and catastrophic results because of several critical shortcomings of the Pearson correlation. The local…
This paper develops new mathematical techniques to identify temporal shifts among a collection of US equities partitioned into a new and more detailed set of market sectors. Although conceptually related, our three analyses reveal distinct…
To disentangle the complex non-stationary dependence structure of precipitation extremes over the entire contiguous U.S., we propose a flexible local approach based on factor copula models. Our sub-asymptotic spatial modeling framework…
A simple spin system is constructed to simulate dynamics of asset prices and studied numerically. The outcome for the distribution of prices is shown to depend both on the dimension of the system and the introduction of price into the link…
We discuss the role of information entropy on the behaviour of random processes, and how this might take effect in the dynamics of financial market prices. We then go on to show how the Open Quantum Systems approach can be used as a more…
We show how inter-asset dependence information derived from market prices of options can lead to improved model-free price bounds for multi-asset derivatives. Depending on the type of the traded option, we either extract correlation…
Large language models (LLMs) have demonstrated promising performance in various financial applications, though their potential in complex investment strategies remains underexplored. To address this gap, we investigate how LLMs can predict…
We consider two applications where we study how dependence structure between many variables is linked to external network data. We first study the interplay between social media connectedness and the co-evolution of the COVID-19 pandemic…
Scale invariance, collective behaviours and structural reorganization are crucial for portfolio management (portfolio composition, hedging, alternative definition of risk, etc.). This lack of any characteristic scale and such elaborated…
We consider an asset whose risk-neutral dynamics are described by a general class of local-stochastic volatility models and derive a family of asymptotic expansions for European-style option prices and implied volatilities. Our implied…
Multi-component LLM agents assemble probabilistic claims from components that each see only part of a joint problem; the composition can violate basic probability axioms even when every component is locally coherent. We formalise this…
The classical linear Black--Scholes model for pricing derivative securities is a popular model in financial industry. It relies on several restrictive assumptions such as completeness, and frictionless of the market as well as the…
In financial markets, accurately measuring the risk of future fluctuations in asset prices is of paramount importance. Studies such as Carr and Madan have shown that the expected value of the quadratic variation of log prices can be…