Related papers: Erratum for: Smile dynamics -- a theory of the imp…
Weighting and trimming are popular methods for addressing positivity violations in causal inference. While well-studied with single-timepoint data, standard methods do not easily generalize to address non-baseline positivity violations in…
Large language models (LLMs) show potential as simulators of human behavior, offering a scalable way to study responses to interventions. However, because LLMs are trained largely on observational data, interventions in experiments with…
We examine the possibility of incorporating information or views of market movements during the holding period of a portfolio, in the hedging of European options with respect to the underlying. Given a fixed holding period interval, we…
We present a framework for analyzing the near miss effect in lotteries. A decision maker (DM) facing a lottery, falsely interprets losing outcomes that are close to winning ones, as a sign that success is within reach. As a result of this…
In a recent article the authors obtained a formula which relates explicitly the tail of risk neutral returns with the wing behavior of the Black Scholes implied volatility smile. In situations where precise tail asymptotics are unknown but…
It is fair to say that many of the prominent examples of bias in Machine Learning (ML) arise from bias that is there in the training data. In fact, some would argue that supervised ML algorithms cannot be biased, they reflect the data on…
In this article, we investigate the behavior of long-term options. In many cases, option prices follow an exponential decay (or growth) rate for further maturity dates. We determine under what conditions option prices are characterized by…
Due to the implement of guardrails by developers, Large language models (LLMs) have demonstrated exceptional performance in explicit bias tests. However, bias in LLMs may occur not only explicitly, but also implicitly, much like humans who…
Previous research has shown that LLMs finetuned on malicious or incorrect completions within narrow domains (e.g., insecure code or incorrect medical advice) can become broadly misaligned to exhibit harmful behaviors, which is called…
Following an approach originally suggested by Balland in the context of the SABR model, we derive an ODE that is satisfied by normalized volatility smiles for short maturities under a rough volatility extension of the SABR model that…
The article presents a translation of some widespread financial terminology into the language of decision theory. For instance, financial leverage can be regarded as an object of choice or a decision. We show how the optics of decision…
We develop closed-form expansions for the implied volatility of VIX options within the class of forward variance models. Our approach builds on weak-approximation techniques for VIX option prices and yields explicit implied volatility…
This paper considers estimation and inference about tail features when the observations beyond some threshold are censored. We first show that ignoring such tail censoring could lead to substantial bias and size distortion, even if the…
Risk and uncertainty will always be a matter of experience, luck, skills, and modelling. Leverage is another concept, which is critical for the investor decisions and results. Adaptive skills and quantitative probabilistic methods need to…
As Large Language Models (LLMs) continue to evolve, they are increasingly being employed in numerous studies to simulate societies and execute diverse social tasks. However, LLMs are susceptible to societal biases due to their exposure to…
This work examines a stochastic volatility model with double-exponential jumps in the context of option pricing. The model has been considered in previous research articles, but no thorough analysis has been conducted to study its quality…
In this study, we predict next-day movements of stock end-of-day implied volatility using random forests. Through an ablation study, we examine the usefulness of different sources of predictors and expose the value of attention and…
Understanding the duration of news events' impact on the stock market is crucial for effective time-series forecasting, yet this facet is largely overlooked in current research. This paper addresses this research gap by introducing a novel…
We invert the Black-Scholes formula. We consider the cases low strike, large strike, short maturity and large maturity. We give explicitly the first 5 terms of the expansions. A method to compute all the terms by induction is also given. At…
There is a well developed framework, the Black-Scholes theory, for the pricing of contracts based on the future prices of certain assets, called options. This theory assumes that the probability distribution of the returns of the underlying…