Related papers: Modeling microstructure noise with mutually exciti…
Parametric estimation of stochastic differential equations (SDEs) has been a subject of intense studies already for several decades. The Heston model for instance is driven by two coupled SDEs and is often used in financial mathematics for…
Learning is based on synaptic plasticity, which affects and is driven by neural activity. Because pre- and postsynaptic spiking activity is shaped by randomness, the synaptic weights follow a stochastic process, requiring a probabilistic…
The price-bubble and crash process formation is theoretically investigated in a two-asset equilibrium model. Sufficient and necessary conditions are derived for the existence of average equilibrium price dynamics of different agent-based…
We consider a mean-variance portfolio selection problem in a financial market with contagion risk. The risky assets follow a jump-diffusion model, in which jumps are driven by a multivariate Hawkes process with mutual-excitation effect. The…
In this paper, we are presenting a method for estimation of market parameters modeled by jump diffusion process. The method proposed is based on Gibbs sampler, while the market parameters are the drift, the volatility, the jump intensity…
We construct a statistical indicator for the detection of short-term asset price bubbles based on the information content of bid and ask market quotes for plain vanilla put and call options. Our construction makes use of the martingale…
We present and discuss a stochastic model of financial assets dynamics based on the idea of an inverse renormalization group strategy. With this strategy we construct the multivariate distributions of elementary returns based on the scaling…
Asynchronous trading in high-frequency financial markets introduces significant biases into econometric analysis, distorting risk estimates and leading to suboptimal portfolio decisions. Existing synchronization methods, such as the…
It is well documented from various empirical studies that the volatility process of an asset price dynamics is stochastic. This phenomenon called for a new approach to describing the random evolution of volatility through time with…
The statistical properties of a stochastic process may be described (1)by the expectation values of the observables, (2)by the probability distribution functions or (3)by probability measures on path space. Here an analysis of level (3) is…
We present a Markovian market model driven by a hidden Brownian efficient price. In particular, we extend the queue-reactive model, making its dynamics dependent on the efficient price. Our study focuses on two sub-models: a signal-driven…
We consider the pricing problem related to payoffs that can have discontinuities of polynomial growth. The asset price dynamic is modeled within the Black and Scholes framework characterized by a stochastic volatility term driven by a…
We consider uncorrelated Stein-Stein, Heston, and Hull-White models and their perturbations by compound Poisson processes with jump amplitudes distributed according to a double exponential law. Similar perturbations of the Black-Scholes…
Market Microstructure is the investigation of the process and protocols that govern the exchange of assets with the objective of reducing frictions that can impede the transfer. In financial markets, where there is an abundance of recorded…
We investigate a statistical-static hedging technique for pricing assets considered as single-step stochastic cash flows. The valuation is based on constructing in a canonical way a European style derivative on a benchmark security such…
In a fixed time horizon, appropriately executing a large amount of a particular asset -- meaning a considerable portion of the volume traded within this frame -- is challenging. Especially for illiquid or even highly liquid but also highly…
Stylized facts can be regarded as constraints for any modeling attempt of price dynamics on a financial market, in that an empirically reasonable model has to reproduce these stylized facts at least qualitatively. The dynamics of market…
We consider a microstructure model for a financial asset, allowing for price discreteness and for a diffusive behavior at large sampling scale. This model, introduced by Delattre and Jacod, consists in the observation at the high frequency…
This paper develops a dynamic factor model that uses euro area (EA) country-specific information on output and inflation to estimate an area-wide measure of the output gap. Our model assumes that output and inflation can be decomposed into…
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…