Related papers: An Active Margin System and its Application in Chi…
In this paper, we propose an equilibrium pricing model in a dynamic multi-period stochastic framework with uncertain income streams. In an incomplete market, there exist two traded risky assets (e.g. stock/commodity and weather derivative)…
Regime detection is vital for the effective operation of trading and investment strategies. However, the most popular means of doing this, the two-state Markov-switching regression model (MSR), is not an optimal solution, as two volatility…
The traditional monetary transmission mechanism usually views the equity markets as the monetary reservoir that absorbs over-issued money, but due to China's unique fiscal and financial system, the real estate sector has become an…
Statistical analysis of high-frequency stock market order transaction data is conducted to understand order transition dynamics. We employ a first-order time-homogeneous discrete-time Markov chain model to the sequence of orders of stocks…
We study optimal trade execution strategies in financial markets with discrete order flow. The agent has a finite liquidation horizon and must minimize price impact given a random number of incoming trade counterparties. Assuming that the…
Technical trading rules have a long history of being used by practitioners in financial markets. Their profitable ability and efficiency of technical trading rules are yet controversial. In this paper, we test the performance of more than…
The lifetime behaviour of loans is notoriously difficult to model, which can compromise a bank's financial reserves against future losses, if modelled poorly. Therefore, we present a data-driven comparative study amongst three techniques in…
Credit risk in the China's bond market has become increasingly evident, creating a progressively escalating risk of default for credit bond investors. Given the current incomplete and inaccurate bond information disclosure, timely tracking…
In this paper we present an algorithm for pricing barrier options in one-dimensional Markov models. The approach rests on the construction of an approximating continuous-time Markov chain that closely follows the dynamics of the given…
We study market-consistent valuation of liability cash flows motivated by current regulatory frameworks for the insurance industry. Building on the theory on multiple-prior optimal stopping we propose a valuation functional with sound…
Bid-ask spread is taken as an important measure of the financial market liquidity. In this article, we study the dynamics of the spread return and the spread volatility of four liquid stocks in the Chinese stock market, including the memory…
We find the variance-optimal equivalent martingale measure when multivariate assets are modeled by a regime-switching geometric Brownian motion, and the regimes are represented by a homogeneous continuous time Markov chain. Under this new…
Following the recent literature on make take fees policies, we consider an exchange wishing to set a suitable contract with several market makers in order to improve trading quality on its platform. To do so, we use a principal-agent…
We survey systemic risks to financial markets and present a high-level description of an algorithm that measures systemic risk in terms of coupled networks.
A theoretical method is empirically illustrated in finding the best time to forsake a loan such that the overall credit loss is minimised. This is predicated by forecasting the future cash flows of a loan portfolio up to the contractual…
Systemic risk arises as a multi-layer network phenomenon. Layers represent direct financial exposures of various types, including interbank liabilities, derivative- or foreign exchange exposures. Another network layer of systemic risk…
Systemic risk refers to the risk that the financial system is susceptible to failures due to the characteristics of the system itself. The tremendous cost of systemic risk requires the design and implementation of tools for the efficient…
We develop a stochastic approximation-type algorithm to solve finite state/action, infinite-horizon, risk-aware Markov decision processes. Our algorithm has two loops. The inner loop computes the risk by solving a stochastic saddle-point…
Market participants regularly send bid and ask quotes to exchange-operated limit order books. This creates an optimization challenge where their potential profit is determined by their quoted price and how often their orders are…
With the emergence of decentralized finance, new trading mechanisms called Automated Market Makers have appeared. The most popular Automated Market Makers are Constant Function Market Makers. They have been studied both theoretically and…