Related papers: Heat Kernel Framework for Asset Pricing in Finite …
This paper describes a flexible and tractable bottom-up dynamic correlation modelling framework with a consistent stochastic recovery specification. The stochastic recovery specification only models the first two moments of the spot…
We introduce a new set of consistent measures of risks, in terms of the semi-invariants of pdf's, such that the centered moments and the cumulants of the portfolio distribution of returns that put more emphasis on the tail the…
The paper investigates the problems of quickest change detection in Markov models and hidden Markov models (HMMs). Sequential observations are taken from a (hidden) Markov model. At some unknown time, an event occurs in the system and…
Financial markets tend to switch between various market regimes over time, making stationarity-based models unsustainable. We construct a regime-switching model independent of asset classes for risk-adjusted return predictions based on…
The paper contributes to the rare literature modeling term structure of crude oil markets. We explain term structure of crude oil prices using dynamic Nelson-Siegel model, and propose to forecast them with the generalized regression…
The programmable and composable nature of smart contract protocols has enabled the emergence of novel market structures and asset classes that are architecturally frictional to implement in traditional financial paradigms. This fluidity has…
We outline a mathematical model for pricing hydropower generation. The model involves a Markov decision process that reflects the seasonal variation in historical time series of water inflows. The procedure is computationally efficient and…
This paper investigates the pricing of European-style lookback options when the price dynamics of the underlying risky asset are assumed to follow a Markov-modulated Geo-metric Brownian motion; that is, the appreciation rate and the…
The objective of the paper is to price weather contracts using temperature as the underlying process when the later follows a mean-reverting dynamics driven by a time-changed Brownian motion coupled to a Gamma Levy subordinator and…
Pricing a multi-asset derivative is an important problem in financial engineering, both theoretically and practically. Although it is suitable to numerically solve partial differential equations to calculate the prices of certain types of…
This paper develops a deep learning-based framework for pricing convertible bonds with path-dependent contractual features, namely downward conversion price reset and issuer call clauses under rolling-window trigger rules, which are…
Models to price long term loans in the securities lending business are developed. These longer horizon deals can be viewed as contracts with optionality embedded in them. This insight leads to the usage of established methods from…
We propose a causal heat conduction model based on a heat kernel violating the fading memory paradigm. The resulting transport equation produces an equation for the temperature. The model is applied to the discussion of two important issues…
This paper presents an analytically tractable and practically-oriented model of non-linear dynamics of a multi-asset market in the limit of a large number of assets. The asset price dynamics are driven by money flows into the market from…
In this paper, we propose a novel methodology for pricing equity-indexed annuities featuring cliquet-style payoff structures and early surrender risk, using advanced financial modeling techniques. Specifically, the market is modeled by an…
We consider a stochastic factor financial model where the asset price process and the process for the stochastic factor depend on an observable Markov chain and exhibit an affine structure. We are faced with a finite time investment horizon…
This paper introduces a short rate model in continuous time that adds one or more memory (delay) components to the Merton model (Merton 1970, 1973) or the Vasi\v{c}ek model (Vasi\v{c}ek 1977) for the short rate. The distribution of the…
Trading activities in financial systems create various channels through which systemic risk can propagate. An important contagion channel is financial fire sales, where a bank failure causes asset prices to fall due to asset liquidation,…
In this paper, we introduce a suite of models for price-aware automated market making platforms willing to optimize their quotes. These models incorporate advanced price dynamics, including stochastic volatility, jumps, and microstructural…
Quadratic Hawkes (QHawkes) processes have proved effective at reproducing the statistics of price changes, capturing many of the stylised facts of financial markets. Motivated by the recently reported strong occurrence of endogenous…