Related papers: Intertemporal Substitutability, Risk Aversion and …
This paper investigates a novel behavioral feature of recursive preferences: aversion to risks that persist over time, or simply \textit{correlation aversion}. Greater persistence provides information about future consumption but reduces…
We show that financial correlations exhibit a non-trivial dynamic behavior. We introduce a simple phenomenological model of a multi-asset financial market, which takes into account the impact of portfolio investment on price dynamics. This…
We consider insurance derivatives depending on an external physical risk process, for example a temperature in a low dimensional climate model. We assume that this process is correlated with a tradable financial asset. We derive optimal…
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…
This paper shows that jumps in financial asset prices are often erroneously identified and are, in fact, rare events accounting for a very small proportion of the total price variation. We apply new econometric techniques to a comprehensive…
Financial markets tend to switch between various market regimes over time, making stationarity-based models unsustainable. We construct a regime-switching model independent of asset classes for risk-adjusted return predictions based on…
Recent developments in the global liberalization of equity and currency markets, coupled to advances in trading technologies, are making markets increasingly interdependent. This increased fluidity raises questions about the stability of…
We examine how the most prevalent stochastic properties of key financial time series have been affected during the recent financial crises. In particular we focus on changes associated with the remarkable economic events of the last two…
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 study investigates the relationship between the market volatility of the iShares Asia 50 ETF (AIA) and economic and market sentiment indicators from the United States, China, and globally during periods of economic uncertainty.…
An empirical analysis, suggested by optimal Merton dynamics, reveals some unexpected features of asset volumes. These features are connected to traders' belief and risk aversion. This paper proposes a trading strategy model in the optimal…
Risk management is very important for individual investors or companies. There are many ways to measure the risk of investment. Prices of risky assets vary rapidly and randomly due to the complexity of finance market. Random interval is a…
Decisions taken in our everyday lives are based on a wide variety of information so it is generally very difficult to assess what are the strategies that guide us. Stock market therefore provides a rich environment to study how people take…
We investigate Ising model description of dynamics of stock price. The model is defined in near 2 dimensions, one dimension is time and another represents ensemble of stocks, and strength of response of investors to price change corresponds…
Research has shown banks match interest income and expense betas, and thereby obtain net interest income margins which are insensitive to changes in short-term interest rates. The present analysis extends this research in a number of ways.…
This paper studies dynamic asset allocation with interest rate risk and several sources of ambiguity. The market consists of a risk-free asset, a zero-coupon bond (both determined by a Vasicek model), and a stock. There is ambiguity about…
Throughout history, many countries have repeatedly experienced large swings in asset prices, which are usually accompanied by large fluctuations in macroeconomic activity. One of the characteristics of the period before major economic…
We study the informational efficiency of a market with a single traded asset. The price initially differs from the fundamental value, about which the agents have noisy private information (which is, on average, correct). A fraction of…
We propose a non linear Langevin equation as a model for stock market fluctuations and crashes. This equation is based on an identification of the different processes influencing the demand and supply, and their mathematical transcription.…
It is commonly believed that the correlations between stock returns increase in high volatility periods. We investigate how much of these correlations can be explained within a simple non-Gaussian one-factor description with time…