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Inspired by recent ideas on how the analysis of complex financial risks can benefit from analogies with independent research areas, we propose an unorthodox framework for mapping microfinance credit risk---a major obstacle to the…
We introduce a dynamic model of the default waterfall of derivatives CCPs and propose a risk sensitive method for sizing the initial margin (IM), and the default fund (DF) and its allocation among clearing members. Using a Markovian…
Price movements of stock market are not totally random. In fact, what drives the financial market and what pattern financial time series follows have long been the interest that attracts economists, mathematicians and most recently computer…
We study risk-aware linear policy approximations for the optimal operation of an energy system with stochastic wind power, storage, and limited fuel. The resulting problem is a sequential decision-making problem with rolling forecasts. In…
This paper proposes a novel continuous-time dynamic contract framework that has a risk-limiting capability. If a principal and an agent enter into such a contract, the principal can optimally manage its performance and risk with a guarantee…
A Hidden Markov Model for intraday momentum trading is presented which specifies a latent momentum state responsible for generating the observed securities' noisy returns. Existing momentum trading models suffer from time-lagging caused by…
Measuring the contribution of a bank or an insurance company to overall systemic risk is a key concern, particularly in the aftermath of the 2007--2009 financial crisis and the 2020 downturn. In this paper, we derive worst-case and…
This paper is concerned with an optimal stock selling rule under a Markov chain model. The objective is to find an optimal stopping time to sell the stock so as to maximize an expected return. Solutions to the associated variational…
This study presents contemporaneous modeling of asset return and price range within the framework of stochastic volatility with leverage. A new representation of the probability density function for the price range is provided, and its…
Systemic risk in banking systems remains a crucial issue that it has not been completely understood. In our toy model, banks are exposed to two sources of risks, namely, market risk from their investments in assets external to the banking…
Optimal trading is a recent field of research which was initiated by Almgren, Chriss, Bertsimas and Lo in the late 90's. Its main application is slicing large trading orders, in the interest of minimizing trading costs and potential…
The distribution of trade sizes and trading volumes are investigated based on the limit order book data of 22 liquid Chinese stocks listed on the Shenzhen Stock Exchange in the whole year 2003. We observe that the size distribution of…
We study the problem of active portfolio management where an investor aims to outperform a benchmark strategy's risk profile while not deviating too far from it. Specifically, an investor considers alternative strategies whose terminal…
This paper proposes a novel continuous Local Flexibility Market where active power flexibility located in the distribution system can be traded. The market design engages the Market Operator, the Distribution System Operator and Market…
In this paper we complete and extend our previous work on stochastic control applied to high frequency market-making with inventory constraints and directional bets. Our new model admits several state variables (e.g. market spread,…
The multi-armed bandit (MAB) is a classical online optimization model for the trade-off between exploration and exploitation. The traditional MAB is concerned with finding the arm that minimizes the mean cost. However, minimizing the mean…
In Electricity markets, illiquidity, transaction costs and market price characteristics prevent managers to replicate exactly contracts. A residual risk is always present and the hedging strategy depends on a risk criterion chosen. We…
We consider a two-way trading problem, where investors buy and sell a stock whose price moves within a certain range. Naturally they want to maximize their profit. Investors can perform up to $k$ trades, where each trade must involve the…
Financial markets for Liquified Natural Gas (LNG) are an important and rapidly-growing segment of commodities markets. Like other commodities markets, there is an inherent spatial structure to LNG markets, with different price dynamics for…
We study the problem of optimally hedging the price exposure of liquidity positions in constant-product automated market makers (AMMs) when the hedge is funded by collateralized borrowing. A liquidity provider (LP) who borrows tokens to…