Related papers: Can Tests for Jumps be Viewed as Tests for Cluster…
This paper presents the solution to a European option pricing problem by considering a regime-switching jump diffusion model of the underlying financial asset price dynamics. The regimes are assumed to be the results of an observed pure…
In the option valuation literature, the shortcomings of one factor stochastic volatility models have traditionally been addressed by adding jumps to the stock price process. An alternate approach in the context of option pricing and…
Statistical jump models have been recently introduced to detect persistent regimes by clustering temporal features and discouraging frequent regime changes. However, they are limited to hard clustering and thereby do not account for…
Assessment of risk levels for existing credit accounts is important to the implementation of bank policies and offering financial products. This paper uses cluster analysis of behaviour of credit card accounts to help assess credit risk…
We consider a bivariate process $X_t=(X^1_t,X^2_t)$, which is observed on a finite time interval $[0,T]$ at discrete times $0,\Delta_n,2\Delta_n,....$ Assuming that its two components $X^1$ and $X^2$ have jumps on $[0,T]$, we derive tests…
The present report extends the method of fixed point clustering (Phys.Rev. E 61,5, R4691-4693, 2000) by introducing an indirect criterion for the number of clusters. The derived probability function allows an objective distinction of…
This paper develops procedures to combine clusters for the approximate randomization test proposed by Canay, Romano, and Shaikh (2017). Their test can be used to conduct inference with a small number of clusters and imposes weak…
As it is known in the finance risk and macroeconomics literature, risk-sharing in large portfolios may increase the probability of creation of default clusters and of systemic risk. We review recent developments on mathematical and…
We propose some axioms for hierarchical clustering of probability measures and investigate their ramifications. The basic idea is to let the user stipulate the clusters for some elementary measures. This is done without the need of any…
When scholars suspect units are dependent on each other within clusters but independent of each other across clusters, they employ cluster-robust standard errors (CRSEs). Nevertheless, what to cluster over is sometimes unknown. For…
We construct a sequence of functions that uniformly converge (on compact sets) to the price of Asian option, which is written on a stock whose dynamics follows a jump diffusion, exponentially fast. Each of the element in this sequence…
Suppose a researcher observes individuals within a county within a state. Given concerns about correlation across individuals, it is common to group observations into clusters and conduct inference treating observations across clusters as…
Asymptotic theory for approximate martingale estimating functions is generalised to diffusions with finite-activity jumps, when the sampling frequency and terminal sampling time go to infinity. Rate optimality and efficiency are of…
We consider a decision maker who must choose an action in order to maximize a reward function that depends also on an unknown parameter {\Theta}. The decision maker can delay taking the action in order to experiment and gather additional…
In empirical work it is common to estimate parameters of models and report associated standard errors that account for "clustering" of units, where clusters are defined by factors such as geography. Clustering adjustments are typically…
Mandatory emission trading schemes are being established around the world. Participants of such market schemes are always exposed to risks. This leads to the creation of an accompanying market for emission-linked derivatives. To evaluate…
We consider the jump-diffusion risky asset model and study its conditional prediction laws. Next, we explain the conditional least square hedging strategy and calculate its closed form for the jump-diffusion model, considering the…
It is a well known fact that local scale invariance plays a fundamental role in the theory of derivative pricing. Specific applications of this principle have been used quite often under the name of `change of numeraire', but in recent work…
In this article, we look at the effect of volatility clustering on the risk indifference price of options described by Sircar and Sturm in their paper (Sircar, R., & Sturm, S. (2012). From smile asymptotics to market risk measures.…
A new Bayesian significance test is adjusted for jump detection in a diffusion process. This is an advantageous procedure for temporal data having extreme valued outliers, like financial data, pluvial or tectonic forces records and others.