Related papers: The potential approach in practice

Cumulative prospect theory (CPT) is the first theory for decision-making under uncertainty that combines full theoretical soundness and empirically realistic features [P.P. Wakker - Prospect theory: For risk and ambiguity, Page 2]. While…

The aim of this paper is to propose a new methodology that allows forecasting, through Vasicek and CIR models, of future expected interest rates (for each maturity) based on rolling windows from observed financial market data. The novelty,…

We introduce a technique of time series analysis, potential forecasting, which is based on dynamical propagation of the probability density of time series. We employ polynomial coefficients of the orthogonal approximation of the empirical…

This paper develops a flexible and computationally efficient multivariate volatility model, which allows for dynamic conditional correlations and volatility spillover effects among financial assets. The new model has desirable properties…

There are two possible ways of interpreting the seemingly stochastic nature of financial markets: the Efficient Market Hypothesis (EMH) and a set of stylized facts that drive the behavior of the markets. We show evidence for some of the…

A simple method is proposed to estimate the instantaneous correlations between state variables in a hybrid system from the empirical correlations between observable market quantities such as spot rate, stock price and implied volatility.…

This paper introduces a new type of risk measures, namely regime switching entropic risk measures, and study their applicability through simulations. The state of the economy is incorporated into the entropic risk formulation by using a…

The paper presents two new approaches to modeling the interaction of small and medium pricetaking traders with a stock exchange. In the framework of these approaches, the traders can form and manage their portfolios of financial instruments…

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 representative investor generates realistic and complex security price paths by following this trading strategy: if, a few ticks ago, the market asset had two consecutive upticks or two consecutive downticks, then sell, and otherwise buy.…

The paper provides an overview of the theory and applications of risk-sensitive Markov decision processes. The term 'risk-sensitive' refers here to the use of the Optimized Certainty Equivalent as a means to measure expectation and risk.…

The theory of ``Markov-up'' processes is being developed. This is a new class of stochastic processes with ``partial'' markovian features; it could also be called ``one-sided Markov''. Such a behavior may be found in the real world and in…

Latent space models are popular for analyzing dynamic network data. We propose a variational approach to estimate the model parameters as well as the latent positions of the nodes in the network. The variational approach is much faster than…

Based on the existing literature, this article presents the different ways of choosing the parameters of stochastic volatility models in general, in the context of pricing financial derivative contracts. This includes the use of stochastic…

New theoretical approaches about forecasting stock markets are proposed. A mathematization of the stock market in terms of arithmetical relations is given, where some simple (non-differential, non-fractal) expressions are also suggested as…

The purpose of this paper is to utilize statistical methodologies to infer from market prices of assets and their derivatives the magnitude of the set of a measure M that defines acceptance sets of risky future cash flows. Specifically, we…

This paper offers a new class of models of the term structure of interest rates. We allow each instantaneous forward rate to be driven by a different stochastic shock, constrained in such a way as to keep the forward rate curve continuous.…

Classical linear regression is considered for a case when regression parameters depend on the external random environment. The last is described as a continuous time Markov chain with finite state space. Here the expected sojourn times in…

In this note we provide a direct approach to the most basic operator in this theory namely the exterior derivative. The crucial ingredient is a calculus lemma based on determinants. We maintain the view that in a first course at least this…

We study the local volatility function in the Foreign Exchange market where both domestic and foreign interest rates are stochastic. This model is suitable to price long-dated FX derivatives. We derive the local volatility function and…