Related papers: Erratum for: Smile dynamics -- a theory of the imp…
We consider implied volatilities in asset pricing models, where the discounted underlying is a strict local martingale under the pricing measure. Our main result gives an asymptotic expansion of the right wing of the implied volatility…
We review the dynamics of the returns of Leveraged Exchange Traded Funds (LETFs) and propose a new measure of realized volatility: Shortfall from Maximum Convexity. We show that SMC has a more intuitive interpretation and provides more…
We present a neural-network valuation of financial derivatives in the case of fat-tailed underlying asset returns. A two-layer perceptron is trained on simulated prices taking into account the well-known effect of volatility smile. The…
We propose a general interpretation for long-range correlation effects in the activity and volatility of financial markets. This interpretation is based on the fact that the choice between `active' and `inactive' strategies is subordinated…
Large Language Models (LLMs) have recently been leveraged for asset pricing tasks and stock trading applications, enabling AI agents to generate investment decisions from unstructured financial data. However, most evaluations of LLM…
The paper demonstrates that a pure-diffusion 3/2 model is able to capture the observed upward-sloping implied volatility skew in VIX options. This observation contradicts a common perception in the literature that jumps are required for the…
This paper investigates the equilibrium portfolio selection for smooth ambiguity preferences in a continuous-time market. The investor is uncertain about the risky asset's drift term and updates the subjective belief according to the…
Let $\sigma_t(x)$ denote the implied volatility at maturity $t$ for a strike $K=S_0 e^{xt}$, where $x\in\bbR$ and $S_0$ is the current value of the underlying. We show that $\sigma_t(x)$ has a uniform (in $x$) limit as maturity $t$ tends to…
In this paper we present a novel approach to the determination of fat tails in financial data by studying the information contained in the limit order book. In an order-driven market buyers and sellers may submit limit orders, which are…
While various approaches have recently been studied for bias identification, little is known about how implicit language that does not explicitly convey a viewpoint affects bias amplification in large language models. To examine the…
We consider a class of assets whose risk-neutral pricing dynamics are described by an exponential L\'evy-type process subject to default. The class of processes we consider features locally-dependent drift, diffusion and default-intensity…
We propose a general interpretation for long-range correlation effects in the activity and volatility of financial markets. This interpretation is based on the fact that the choice between `active' and `inactive' strategies is subordinated…
We review the nature of some well-known phenomena such as volatility smiles, convexity adjustments and parallel derivative markets. We propose that the market is incomplete and postulate the existence of intrinsic risks in every contingent…
This paper derives explicit formulas for both the small and large time limits of the implied volatility in the minimal market model. It is shown that interest rates do impact on the implied volatility in the long run even though they are…
Option prices encode the market's collective outlook through implied density and implied volatility. An explicit link between implied density and implied volatility translates the risk-neutrality of the former into conditions on the latter…
We consider a market model where there are two levels of information. The public information generated by the financial assets, and a larger flow of information that contains additional knowledge about a random time. This random time can…
Online platforms often have conflicting goals: they face tradeoffs between increasing efficiency and reducing disparities, where the latter may relate to objectives such as the longer-term health of the marketplace or the organization's…
Excessive leverage, i.e. the abuse of debt financing, is considered one of the primary factors in the default of financial institutions. Systemic risk results from correlations between individual default probabilities that cannot be…
This paper investigates short-term behaviors of implied volatility of derivatives written on indexes in equity markets when the index processes are constructed by using a ranking procedure. Even in simple market settings where stock prices…
We consider the problem of option hedging in a market with proportional transaction costs. Since super-replication is very costly in such markets, we replace perfect hedging with an expected loss constraint. Asymptotic analysis for small…