Related papers: On idiosyncratic stochasticity of financial levera…
In the context of the usual calibration model, we consider the case in which the independent variable is unobservable, but a pre-fixed value on its surrogate is available. Thus, considering controlled variables and assuming that the…
The collateral choice option allows a collateral-posting party the opportunity to change the type of security in which the collateral is deposited. Due to non-zero collateral basis spreads, this optionality significantly impacts asset…
We study a stochastic multiplicative system composed of finite asynchronous elements to describe the wealth evolution in financial markets. We find that the wealth fluctuations or returns of this system can be described by a walk with…
This study presents a comprehensive empirical investigation of the presence of long-range dependence (LRD) in the dynamics of major U.S. stock market indexes--S\&P 500, Dow Jones, and Nasdaq--at daily, weekly, and monthly frequencies. We…
We propose a model to forecast large realized covariance matrices of returns, applying it to the constituents of the S\&P 500 daily. To address the curse of dimensionality, we decompose the return covariance matrix using standard firm-level…
With the daily and minutely data of the German DAX and Chinese indices, we investigate how the return-volatility correlation originates in financial dynamics. Based on a retarded volatility model, we may eliminate or generate the…
This paper introduces a novel stochastic control framework to enhance the capabilities of automated investment managers, or robo-advisors, by accurately inferring clients' investment preferences from past activities. Our approach leverages…
We consider rate swaps which pay a fixed rate against a floating rate in presence of bid-ask spread costs. Even for simple models of bid-ask spread costs, there is no explicit strategy optimizing an expected function of the hedging error.…
It is widely accepted that there is strong persistence in the volatility of financial time series. The origin of the observed persistence, or long-range memory, is still an open problem as the observed phenomenon could be a spurious effect.…
In this paper, we model dependence between operational risks by allowing risk profiles to evolve stochastically in time and to be dependent. This allows for a flexible correlation structure where the dependence between frequencies of…
The main purpose of this work is to derive a partial differential equation for the reserves of life insurance liabilities subject to stochastic interest rates where the benefits and premiums depend directly on changes in the interest rate…
We apply the concepts of utility based pricing and hedging of derivatives in stochastic volatility markets and introduce a new class of "reciprocal affine" models for which the indifference price and optimal hedge portfolio for pure…
The purpose of this work is to explore the role that random arbitrage opportunities play in pricing financial derivatives. We use a non-equilibrium model to set up a stochastic portfolio, and for the random arbitrage return, we choose a…
Pearson correlation and mutual information based complex networks of the day-to-day returns of US S&P500 stocks between 1985 and 2015 have been constructed in order to investigate the mutual dependencies of the stocks and their nature. We…
We propose a deep hedging framework for index option portfolios, grounded in a realistic market simulator that captures the joint dynamics of S&P 500 returns and the full implied volatility surface. Our approach integrates surface-informed…
With increasing competition and pace in the financial markets, robust forecasting methods are becoming more and more valuable to investors. While machine learning algorithms offer a proven way of modeling non-linearities in time series,…
We consider the problem of valuing a European option written on an asset whose dynamics are described by an exponential L\'evy-type model. In our framework, both the volatility and jump-intensity are allowed to vary stochastically in time…
Although there are many methods for functional data analysis (FDA), little emphasis is put on characterizing variability among volatilities of individual functions. In particular, certain individuals exhibit erratic swings in their…
We suggest employing log-ergodic processes to simulate the velocity of money in an ergodic manner. Our approach sheds light on economic behavior, policy implications, and financial dynamics by maintaining long-term stability. By bridging…
In an era when derivatives is getting popular, risk management has gradually become the core content of modern finance. In order to study how to accurately estimate the volatility of the S&P 500 index, after introducing the theoretical…