Related papers: The non-linear trade-off between return and risk: …
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…
Consider an insurance company exposed to a stochastic economic environment that contains two kinds of risk. The first kind is the insurance risk caused by traditional insurance claims, and the second kind is the financial risk resulting…
Basic peculiarities of market price fluctuations are known to be well described by a recently developed random walk model in a temporally deforming quadric potential force whose center is given by a moving average of past price traces…
Diversification is the typical investment strategy of risk-averse agents. However, non-diversified positions that allocate all resources to a single asset, state of the world or revenue stream are common too. We show that whenever finitely…
This paper discusses an alternative explanation for the empirical findings contradicting the positive relationship between risk (variance) and reward (expected return). We show that these contradicting results might be due to the false…
This paper investigates how to measure common market risk factors using newly proposed Panel Quantile Regression Model for Returns. By exploring the fact that volatility crosses all quantiles of the return distribution and using penalized…
Multifractality is ubiquitously observed in complex natural and socioeconomic systems. Multifractal analysis provides powerful tools to understand the complex nonlinear nature of time series in diverse fields. Inspired by its striking…
In this paper we explore the functional correlation approach to operational risk. We consider networks with heterogeneous a-priori conditional and unconditional failure probability. In the limit of sparse connectivity, self-consistent…
We investigate the phenomenon of non-recursive trade-offs between descriptional systems in an abstract fashion. We aim at categorizing non-recursive trade-offs by bounds on their growth rate, and show how to deduce such bounds in general.…
This paper explores the mean-variance portfolio selection problem in a multi-period financial market characterized by regime-switching dynamics and uncontrollable liabilities. To address the uncertainty in the decision-making process within…
Transition-related financial markets are increasingly exposed to abrupt repricing episodes, elevated volatility, and heterogeneous macro-financial shocks. Under such conditions, conventional Gaussian-linear forecasting frameworks may…
This paper attempts to find a relationship between agents' risk aversion and inequality of incomes. Specifically, a model is proposed for the evolution in time of surplus/deficit distribution, and the long-time distributions are…
This paper reviews some of the phenomenological models which have been introduced to incorporate the scaling properties of financial data. It also illustrates a microscopic model, based on heterogeneous interacting agents, which provides a…
An investor trades a safe and several risky assets with linear price impact to maximize expected utility from terminal wealth. In the limit for small impact costs, we explicitly determine the optimal policy and welfare, in a general…
On the framework of the Linear Farmer's Model, we approach the indeterminacy of agents' behaviour by associating with each agent an unconditional probability for her to be active at each time step. We show that Pareto tailed returns can…
Being able to predict the occurrence of extreme returns is important in financial risk management. Using the distribution of recurrence intervals---the waiting time between consecutive extremes---we show that these extreme returns are…
The energy market, and specifically the renewable sector carries volatility and risks, similar to the financial market. Here, we leverage on a well-established, return-risk approach, commonly used by equity portfolio-managers and apply it…
Explicitly taking into account the risk incurred when borrowing at a shorter tenor versus lending at a longer tenor ("roll-over risk"), we construct a stochastic model framework for the term structure of interest rates in which a frequency…
In a typical stochastic multi-armed bandit problem, the objective is often to maximize the expected sum of rewards over some time horizon $T$. While the choice of a strategy that accomplishes that is optimal with no additional information,…
This paper introduces non-linear dimension reduction in factor-augmented vector autoregressions to analyze the effects of different economic shocks. I argue that controlling for non-linearities between a large-dimensional dataset and the…