Related papers: High moment variations and their application
This paper presents hedging strategies for European and exotic options in a Levy market. By applying Taylor's Theorem, dynamic hedging portfolios are con- structed under different market assumptions, such as the existence of power jump…
First-passage probability estimation of high-dimensional nonlinear stochastic systems is a significant task to be solved in many science and engineering fields, but remains still an open challenge. The present paper develops a novel…
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…
This paper investigates the hedging effectiveness of a dynamic moving window OLS hedging model, formed using wavelet decomposed time-series. The wavelet transform is applied to calculate the appropriate dynamic minimum-variance hedge ratio…
In this paper, we propose a market model with returns assumed to follow a multivariate normal tempered stable distribution defined by a mixture of the multivariate normal distribution and the tempered stable subordinator. This distribution…
We present an empirical study of the subordination hypothesis for a stochastic time series of a stock price. The fluctuating rate of trading is identified with the stochastic variance of the stock price, as in the continuous-time random…
In this chapter we first briefly review the existing approaches to hedging in rough volatility models. Next, we present a simple but general result which shows that in a one-factor rough stochastic volatility model, any option may be…
The possibilities of the use of the coefficient of variation over a high threshold in tail modelling are discussed. The paper also considers multiple threshold tests for a generalized Pareto distribution, together with a threshold selection…
This paper explores option portfolio optimization when the underlying returns are skew-elliptical t-distributed. We use the variance and value at risk (VaR) to measure portfolio risk. The novelty of our work is the departure from the…
In most real scenarios the construction of a risk-neutral portfolio must be performed in discrete time and with transaction costs. Two human imposed constraints are the risk-aversion and the profit maximization, which together define a…
The estimation of asset return distributions is crucial for determining optimal trading strategies. In this paper we describe the constrained mixture model, based on a mixture of Gamma and Gaussian distributions, to provide an accurate…
Portfolio allocation with gross-exposure constraint is an effective method to increase the efficiency and stability of selected portfolios among a vast pool of assets, as demonstrated in Fan et al (2008). The required high-dimensional…
Signals coming from multivariate higher order conditional moments as well as the information contained in exogenous covariates, can be effectively exploited by rational investors to allocate their wealth among different risky investment…
We extend and test empirically the multifractal model of asset returns based on a multiplicative cascade of volatilities from large to small time scales. The multifractal description of asset fluctuations is generalized into a multivariate…
We compare systematically several classes of stochastic volatility models of stock market fluctuations. We show that the long-time return distribution is either Gaussian or develops a power-law tail, while the short-time return distribution…
Capital allocation is a procedure used to assess the risk contributions of individual risk components to the total risk of a portfolio. While the conditional tail expectation (CTE)-based capital allocation is arguably the most popular…
Expectile, as the minimizer of an asymmetric quadratic loss function, is a coherent risk measure and is helpful to use more information about the distribution of the considered risk. In this paper, we propose a new risk measure by replacing…
Based on a recent theorem due to the authors, it is shown how the extreme tail dependence between an asset and a factor or index or between two assets can be easily calibrated. Portfolios constructed with stocks with minimal tail dependence…
Stochastic volatility processes with heavy-tailed innovations are a well-known model for financial time series. In these models, the extremes of the log returns are mainly driven by the extremes of the i.i.d. innovation sequence which leads…
Using intraday data for the cross-section of individual stocks, we show that both transitory and persistent fluctuations in realized market and average idiosyncratic volatility, skewness and kurtosis are differentially priced in the…