Related papers: Time-Consistent and Market-Consistent Evaluations
An effective two-stage method for an estimation of parameters of the linear regression is considered. For this purpose we introduce a certain quasi-estimator that, in contrast to usual estimator, produces two alternative estimates. It is…
This paper defines systematic value investing as an empirical optimization problem. Predictive modeling is introduced as a systematic value investing methodology with dynamic and optimization features. A predictive modeling process is…
The ultimate value of theories of the fundamental mechanisms comprising the asset price in financial systems will be reflected in the capacity of such theories to understand these systems. Although the models that explain the various states…
Portfolio Selection is an important real-world financial task and has attracted extensive attention in artificial intelligence communities. This task, however, has two main difficulties: (i) the non-stationary price series and complex asset…
In order to simulate the complex phenomena manifested in stock markets, we introduce a continuous asynchronous model in which millions of individual traders interact through a central orders matching mechanism, just as it happens in real…
Trend and Value are pervasive anomalies, common to all financial markets. We address the problem of their co-existence and interaction within the framework of Heterogeneous Agent Based Models (HABM). More specifically, we extend the…
We proposed a two-step Longstaff Schwartz Monte Carlo (LSMC) method with two regression models fitted at each time step to price game options. Although the original LSMC can be used to price game options with an enlarged range of path in…
Stochastic models of point patterns in space and time are widely used to issue forecasts or assess risk, and often they affect societally relevant decisions. We adapt the concept of consistent scoring functions and proper scoring rules,…
In this paper, we propose a minimal model beyond geometric Brownian motion that aims to describe price actions with market inefficiency. From simple financial theory considerations, we arrive at a simple two-variable hidden Markovian time…
This paper develops an axiomatic framework for ranking metrics, a general class of functionals for evaluating and ordering financial or insurance positions. Unlike traditional risk-adjusted performance measures-such as the Sharpe ratio,…
The market weight of a stock is its capitalization (cap) divided by the total market cap. Rank these weights from top to bottom. The capital distribution curve is a plot of weights versus ranks. For the US stock market, it is linear on a…
In this article, variational state estimation is examined from the dynamic programming perspective. This leads to two different value functional recursions depending on whether backward or forward dynamic programming is employed. The result…
Risk management is very important for individual investors or companies. There are many ways to measure the risk of investment. Prices of risky assets vary rapidly and randomly due to the complexity of finance market. Random interval is a…
Starting from the characterization of the past time evolution of market prices in terms of two fundamental indicators, price velocity and price acceleration, we construct a general classification of the possible patterns characterizing the…
Systemic risk is a rapidly developing area of research. Classical financial models often do not adequately reflect the phenomena of bubbles, crises, and transitions between them during credit cycles. To study very improbable events,…
The valuation process that economic agents undergo for investments with uncertain payoff typically depends on their statistical views on possible future outcomes, their attitudes toward risk, and, of course, the payoff structure itself.…
We consider a mean-reverting stochastic volatility model which satisfies some relevant stylized facts of financial markets. We introduce an algorithm for the detection of peaks in the volatility profile, that we apply to the time series of…
How an economic agent (a firm, an investor or a financial market) evaluates a contingent claim, say a European type of derivatives X, with maturity t? In this paper we study a mechanism of dynamic expectations and evaluations. We give the…
The real options approach is now considered an effective alternative to the corporate DCF model for a feasibility study. The current paper offers a practical methodology employing binomial trees and real options techniques for evaluating…
We explore a stochastic model that enables capturing external influences in two specific ways. The model allows for the expression of uncertainty in the parametrisation of the stochastic dynamics and incorporates patterns to account for…