Related papers: Efficient XVA Management: Pricing, Hedging, and At…
In a universe with a single currency, there would be no foreign exchange market, no foreign exchange rates, and no foreign exchange. Over the past twenty-five years, the way the market has performed those tasks has changed enormously. The…
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 dynamic hedging theory only makes sense in the setup of one given model, whereas the practice of dynamic hedging is just the opposite, with models fleeing after the data through daily recalibration. This is quite of a quantitative…
The influence of Commodity Trading Advisors (CTA) on the price process is explored with the help of a simple model. CTA managers are taken to be Kelly optimisers, which invest a fixed proportion of their assets in the risky asset and the…
We develop an arbitrage-free framework for consistent valuation of derivative trades with collateralization, counterparty credit gap risk, and funding costs, following the approach first proposed by Pallavicini and co-authors in 2011. Based…
We examine the dynamics of informational efficiency in a market with asymmetrically informed, boundedly rational traders who adaptively learn optimal strategies using simple multiarmed bandit (MAB) algorithms. The strategies available to…
Finding the hedge ratios for a portfolio and risk compression is the same mathematical problem. Traditionally, regression is used for this purpose. However, regression has its own limitations. For example, in a regression model, we can't…
The inclusion of DVA in the fair-value of derivative transactions has now become standard accounting practice in most parts of the world. Furthermore, some sophisticated banks are including an FVA (Funding Valuation Adjustment), but since…
Motivated by the equations of cross valuation adjustments (XVAs) in the realistic case where capital is deemed fungible as a source of funding for variation margin, we introduce a simulation/regression scheme for a class of anticipated…
Training classification models on imbalanced data tends to result in bias towards the majority class. In this paper, we demonstrate how variable discretization and cost-sensitive logistic regression help mitigate this bias on an imbalanced…
In financial markets, liquidity is not constant over time but exhibits strong seasonal patterns. In this article we consider a limit order book model that allows for time-dependent, deterministic depth and resilience of the book and…
The usual theory of asset pricing in finance assumes that the financial strategies, i.e. the quantity of risky assets to invest, are real-valued so that they are not integer-valued in general, see the Black and Scholes model for instance.…
Much research in systemic risk is focused on default contagion. While this demands an understanding of valuation, fewer articles specifically deal with the existence, the uniqueness, and the computation of equilibrium prices in structural…
This study analyzes the dynamic interactions among the NASDAQ index, crude oil, gold, and the US dollar using a reduced-order modeling approach. Time-delay embedding and principal component analysis are employed to encode high-dimensional…
The efficient market hypothesis (EMH) famously stated that prices fully reflect the information available to traders. This critically depends on the transfer of information into prices through trading strategies. Traders optimise their…
It is essential to incorporate the impact of investor behavior when modeling the dynamics of asset returns. In this paper, we reconcile behavioral finance and rational finance by incorporating investor behavior within the framework of…
The importance of counterparty credit risk to the derivative contracts was demonstrated consistently throughout the financial crisis of 2008. Accurate valuation of Credit value adjustment (CVA) is essential to reflect the economic values of…
Trading large volumes of a financial asset in order driven markets requires the use of algorithmic execution dividing the volume in many transactions in order to minimize costs due to market impact. A proper design of an optimal execution…
Reasonable pricing of data products enables data trading platforms to maximize revenue and foster the growth of the data trading market. The textual semantics of data products are vital for pricing and contain significant value that remains…
Financial markets are a complex dynamical system. The complexity comes from the interaction between a market and its participants, in other words, the integrated outcome of activities of the entire participants determines the markets trend,…