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This paper examines the possibility of using derivative-implied risk premia to explain stock returns. The rapid development of derivative markets has led to the possibility of trading various kinds of risks, such as credit and interest rate…
Although there is a wide use of technical trading rules in stock markets, the profitability of them still remains controversial. This paper first presents and proves the upper bound of cumulative return, and then introduces many of…
Many countries have adopted negative interest rate policies with tiering remuneration, which allows for exemption from negative rates. This practice has led to higher interbank trading volumes, with market rates ranging between zero and the…
Counterparty risk denotes the risk that a party defaults in a bilateral contract. This risk not only depends on the two parties involved, but also on the risk from various other contracts each of these parties holds. In rather informal…
This paper explores the gain maximization problem of two nations engaging in non-cooperative bilateral trade. Probabilistic model of an exchange of commodities under different price systems is considered. Volume of commodities exchanged…
We develop an optimal currency hedging strategy for fund managers who own foreign assets to choose the hedge tenors that maximize their FX carry returns within a liquidity risk constraint. The strategy assumes that the offshore assets are…
We introduce a statistical model for operational losses based on heavy-tailed distributions and bipartite graphs, which captures the event type and business line structure of operational risk data. The model explicitly takes into account…
A pair trade is a portfolio consisting of a long position in one asset and a short position in another, and it is a widely applied investment strategy in the financial industry. Recently, Ekstr\"om, Lindberg and Tysk studied the problem of…
Economic models with input-output networks assume that firm or sector (unit) growth is driven by a weighted sum of trade partners' growth and an independently-drawn idiosyncratic shock. I show that the idiosyncratic risk assumption in a…
We solve exactly a simple model of trend following strategy, and obtain the analytical shape of the profit per trade distribution. This distribution is non trivial and has an option like, asymmetric structure. The degree of asymmetry…
A counterparty credit limit (CCL) is a limit that is imposed by a financial institution to cap its maximum possible exposure to a specified counterparty. CCLs help institutions to mitigate counterparty credit risk via selective…
A repurchase agreement lets investors borrow cash to buy securities. Financier only lends to securities' market value after a haircut and charges interest. Repo pricing is characterized with its puzzling dual pricing measures: repo haircut…
Decentralized Finance (DeFi) money markets have seen explosive growth in recent years, with billions of dollars borrowed in various cryptocurrency assets. Key to the safety of money markets is the implementation of interest rates that…
Trading pressure from one asset can move the price of another, a phenomenon referred to as cross impact. Using tick-by-tick data spanning 5 years for 500 assets listed in the United States, we identify the features that make cross-impact…
We propose a Gaussian-copula-based framework that learns deal-level dependence directly from observed joint success frequencies across founder, geography, and market attributes. Holding marginal deal success probabilities fixed, deal-level…
This article presents a generic model for pricing financial derivatives subject to counterparty credit risk. Both unilateral and bilateral types of credit risks are considered. Our study shows that credit risk should be modeled as American…
The purpose of this paper is to show that the use of heavy-tailed distributions in Financial problems is theoretically baseless and can lead to significant misunderstandings. The reason for this the authors see in an incorrect…
This paper analizes the optimal level of transfer pricing manipulation when the expected tax penalty is a function of the tax enforcement and the market price parameter. The arm's length principle implies the existence of a range of…
We investigate the optimal execution of contracts that are used in merger\&acquisition deals. We consider cash-settled and physically delivered contracts between a broker and a counterpart. Contracts are linear (total returns swaps),…
We review recent progress in modeling credit risk for correlated assets. We start from the Merton model which default events and losses are derived from the asset values at maturity. To estimate the time development of the asset values, the…