Related papers: Modeling the coupled return-spread high frequency …
The stationary higher-order Markov process for circular data is considered. We employ the mixture transition distribution (MTD) model to express the transition density of the process on the circle. The underlying circular transition…
Traders in a market typically have widely different, private information on the return of an asset. The equilibrium price of the asset may reflect this information more accurately if the number of traders is large enough compared to the…
This paper introduces an extension of the Markov switching GARCH model where the volatility in each state is a convex combination of two different GARCH components with time varying weights. This model has the dynamic behavior to capture…
This paper proposes a novel model of financial prices where: (i) prices are discrete; (ii) prices change in continuous time; (iii) a high proportion of price changes are reversed in a fraction of a second. Our model is analytically…
We introduce a novel stochastic volatility model where the squared volatility of the asset return follows a Jacobi process. It contains the Heston model as a limit case. We show that the joint density of any finite sequence of log returns…
The distribution of price returns for a class of uncorrelated diffusive dynamics is considered. The basic assumptions are (1) that there is a "consensus" value associated with a stock, and (2) that the rate of diffusion depends on the…
We construct a price impact model between stocks in a correlated market. For the price change of a given stock induced by the short-run liquidity of this stock itself and of the information about other stocks, we introduce a self- and a…
Recent research on the response of stock prices to trading activity revealed long lasting effects, even across stocks of different companies. These results imply non-Markovian effects in price formation and when trading many stocks at the…
With the increasing volume of high-frequency data in the information age, both challenges and opportunities arise in the prediction of stock volatility. On one hand, the outcome of prediction using tradition method combining stock technical…
This paper examines the problem of pricing spread options under some models with jumps driven by Compound Poisson Processes and stochastic volatilities in the form of Cox-Ingersoll-Ross(CIR) processes. We derive the characteristic function…
We introduce a class of randomly time-changed fast mean-reverting stochastic volatility models and, using spectral theory and singular perturbation techniques, we derive an approximation for the prices of European options in this setting.…
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…
We investigate a generalized stochastic model with the property known as mean reversion, that is, the tendency to relax towards a historical reference level. Besides this property, the dynamics is driven by multiplicative and additive…
Financial markets are a classical example of complex systems as they comprise many interacting stocks. As such, we can obtain a surprisingly good description of their structure by making the rough simplification of binary daily returns.…
The impact of trades on asset prices is a crucial aspect of market dynamics for academics, regulators and practitioners alike. Recently, universal and highly nonlinear master curves were observed for price impacts aggregated on all…
This paper studies the pricing of European-style Asian options when the price dynamics of the underlying risky asset are assumed to follow a Markov- modulated geometric Brownian motion; that is, the appreciation rate and the volatility of…
We study the rate of weak convergence of Markov chains to diffusion processes under suitable but quite general assumptions. We give an example in the financial framework, applying the convergence analysis to a multiple jumps tree…
We show the variational convergence of an irreversible Markov jump process describing a finite stochastic particle system to the solution of a countable infinite system of deterministic time-inhomogeneous quadratic differential equations…
Large trades in a financial market are usually split into smaller parts and traded incrementally over extended periods of time. We address these large trades as hidden orders. In order to identify and characterize hidden orders we fit…
We study a dynamic portfolio optimization problem related to convergence trading, which is an investment strategy that exploits temporary mispricing by simultaneously buying relatively underpriced assets and selling short relatively…