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Stochastic volatility models describe asset prices $S_t$ as driven by an unobserved process capturing the random dynamics of volatility $\sigma_t$. Here, we quantify how much information about $\sigma_t$ can be inferred from asset prices…
We consider the consumption-based asset pricing model, derive a new modified basic pricing equation, and present its successive approximations using the Taylor series expansions of the investor's utility during the averaging time interval.…
Inspired by the recent literature on aggregation theory, we aim at relating the long range correlation of the stocks return volatility to the heterogeneity of the investors' expectations about the level of the future volatility. Based on a…
We attempt to explain stock market dynamics in terms of the interaction among three variables: market price, investor opinion and information flow. We propose a framework for such interaction and apply it to build a model of stock market…
The volatility characterizes the amplitude of price return fluctuations. It is a central magnitude in finance closely related to the risk of holding a certain asset. Despite its popularity on trading floors, the volatility is unobservable…
We propose how to quantify high-frequency market sentiment using high-frequency news from NASDAQ news platform and support vector machine classifiers. News arrive at markets randomly and the resulting news sentiment behaves like a…
This paper proposes a novel model of financial prices where: (i) prices are discrete; (ii) prices change in continuous time; (iii) a high proportion of price changes are reversed in a fraction of a second. Our model is analytically…
The aim of this work is to introduce a new stochastic volatility model for equity derivatives. To overcome some of the well-known problems of the Heston model, and more generally of the affine models, we define a new specification for the…
Analogies between the price dynamics in the foreign exchange market and 3-dimensional fully developed turbulence were recently presented in Nature vol. 381, 767-769 (1996). Independently, we have carried out a study comparing the parallel…
The dynamics of prices in financial markets has been studied intensively both experimentally (data analysis) and theoretically (models). Nevertheless, a complete stochastic characterization of volatility is still lacking. What it is well…
This note continues investigation of randomness-type properties emerging in idealized financial markets with continuous price processes. It is shown, without making any probabilistic assumptions, that the strong variation exponent of…
We present an empirical study of the subordination hypothesis for a stochastic time series of a stock price. The fluctuating rate of trading is identified with the stochastic variance of the stock price, as in the continuous-time random…
Studying Binomial and Gaussian return dynamics in discrete time, we show how excess volatility can be traded to create growth. We test our results on real world data to confirm the observed model phenomena while also highlighting implicit…
In the paper we compare the modelling ability of discrete-time multivariate Stochastic Volatility models to describe the conditional correlations between stock index returns. We consider four trivariate SV models, which differ in the…
We investigate the probability distribution of the volatility return intervals $\tau$ for the Chinese stock market. We rescale both the probability distribution $P_{q}(\tau)$ and the volatility return intervals $\tau$ as…
We develop a theoretical framework that aims to link micro-level option hedging and stock-specific factor exposure with macro-level market turbulence and explain endogenous volatility amplification during gamma-squeeze events. By explicitly…
Trading volume movement prediction is the key in a variety of financial applications. Despite its importance, there is few research on this topic because of its requirement for comprehensive understanding of information from different…
Behavioral finance has become an increasingly important subfield of finance. However the main parts of behavioral finance, prospect theory included, understand financial markets through individual investment behavior. Behavioral finance…
Being able to forcast extreme volatility is a central issue in financial risk management. We present a large volatility predicting method based on the distribution of recurrence intervals between volatilities exceeding a certain threshold…
By studying all the trades and best bids/asks of ultra high frequency snapshots recorded from the order books of a basket of 10 futures assets, we bring qualitative empirical evidence that the impact of a single trade depends on the…