Related papers: Inferring Fundamental Value and Crash Nonlinearity…
We apply two non-parametric methods to test further the hypothesis that log-periodicity characterizes the detrended price trajectory of large financial indices prior to financial crashes or strong corrections. The analysis using the…
We exploit a recent computational framework to model and detect financial crises in stock markets, as well as shock events in cryptocurrency markets, which are characterized by a sudden or severe drop in prices. Our method manages to detect…
In this paper, we introduce and analyze the fractional Barndorff-Nielsen and Shephard (BN-S) stochastic volatility model. The proposed model is based upon two desirable properties of the long-term variance process suggested by the empirical…
Building on a prominent agent-based model, we present a new structural stochastic volatility asset pricing model of fundamentalists vs. chartists where the prices are determined based on excess demand. Specifically, this allows for…
This paper proposes a simple and parsimonious discrete-time simulation model to describe the endogenous formation and periodic collapse of financial bubbles. While existing literature has extensively explored the statistical properties of…
We propose that imitation between traders and their herding behaviour not only lead to speculative bubbles with accelerating over-valuations of financial markets possibly followed by crashes, but also to ``anti-bubbles'' with decelerating…
We compare two models of corporate default by calculating the Jeffreys-Kullback-Leibler divergence between their predicted default probabilities when asset correlations are either high or low. Our main results show that the divergence…
This paper studies the model risk of the Black-Scholes (BS) model in pricing and risk-managing variable annuities motivated by its wide usage in the insurance industry. Specifically, we derive a model-free decomposition of the no-arbitrage…
Prediction of events in financial markets is every investor's dream and, usually, wishful thinking. From a more general, economic and societal viewpoint, the identification of indicators for large events is highly desirable to assess…
We revisit the classic paper of Tirole "Asset Bubbles and Overlapping Generations" (1985, Econometrica), which shows that the emergence of asset bubbles solves the capital over-accumulation problem. While Tirole's main insight holds with…
Speculative bubbles exhibit common statistical signatures across many financial markets, suggesting the presence of universal underlying mechanisms. We test this hypothesis in the Iranian stock market, an economy that is highly isolated,…
We propose a new estimator for the spot covariance matrix of a multi-dimensional continuous semi-martingale log asset price process which is subject to noise and non-synchronous observations. The estimator is constructed based on a local…
Empirical diagnosis of stability has received considerable attention, mostly focused on variance metrics for early warning signals of abrupt system change. Despite this, the theoretical foundation and application has been limited to…
In a series of recent papers Barndorff-Nielsen and Shephard introduce an attractive class of continuous time stochastic volatility models for financial assets where the volatility processes are functions of positive Ornstein-Uhlenbeck(OU)…
The drift burst hypothesis postulates the existence of short-lived locally explosive trends in the price paths of financial assets. The recent U.S. equity and treasury flash crashes can be viewed as two high-profile manifestations of such…
A commonly used stochastic model for derivative and commodity market analysis is the Barndorff-Nielsen and Shephard (BN-S) model. Though this model is very efficient and analytically tractable, it suffers from the absence of long range…
A unified analytical pricing framework with involvement of the shot noise random process has been introduced and elaborated. Two exactly solvable new models have been developed. The first model has been designed to value options. It is…
We study the risk assessment of uncertain cash flows in terms of dynamic convex risk measures for processes as introduced in Cheridito, Delbaen, and Kupper (2006). These risk measures take into account not only the amounts but also the…
This paper develops a model that incorporates the presence of stochastic arbitrage explicitly in the Black--Scholes equation. Here, the arbitrage is generated by a stochastic bubble, which generalizes the deterministic arbitrage model…
The local volatility model is a widely used for pricing and hedging financial derivatives. While its main appeal is its capability of reproducing any given surface of observed option prices---it provides a perfect fit---the essential…