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Financial markets such as bond, derivatives, and repo markets form networks of interdependent obligations. Existing multilateral netting methods typically trade off the extent of netting against preservation of counterparty exposure:…
We propose a pricing technique based on coherent risk measures, which enables one to get finer price intervals than in the No Good Deals pricing. The main idea consists in splitting a liability into several parts and selling these parts to…
In an observed generalized semi-Markov regime, estimation of transition rate of regime switching leads towards calculation of locally risk minimizing option price. Despite the uniform convergence of estimated step function of transition…
Calibration is a pivotal aspect in predictive modeling, as it ensures that the predictions closely correspond with what we observe empirically. The contemporary calibration framework, however, is predominantly focused on prediction models…
In this paper we show how to approximate a Heath-Jarrow-Morton dynamics for the forward prices in commodity markets with arbitrage-free models which have a finite dimensional state space. Moreover, we recover a closed form representation of…
We develop the HJM framework for forward rates driven by affine processes on the state space of symmetric positive matrices. In this setting we find a representation for the long-term yield and investigate the yield's asymptotic behaviour.
We consider a general class of diffusion-based models and show that, even in the absence of an Equivalent Local Martingale Measure, the financial market may still be viable, in the sense that strong forms of arbitrage are excluded and…
Large language models (LLMs) are increasingly deployed in quantitative finance for stock price forecasting. This review synthesizes recent applications of LLMs in this domain, including extracting sentiment from financial news and social…
We study how delegating pricing to large language models (LLMs) can facilitate collusion in a duopoly when both sellers rely on the same pre-trained model. The LLM is characterized by (i) a propensity parameter capturing its internal bias…
The key characteristic of a true free market economy is that exchanges are entirely voluntary. When there is a monopoly in the creation of currency as we have in today's markets, you no longer have a true free market. Features of the…
We explore a decomposition in which returns on a large class of portfolios relative to the market depend on a smooth non-negative drift and changes in the asset price distribution. This decomposition is obtained using general continuous…
Collective phenomena with universal properties have been observed in many complex systems with a large number of components. Here we present a microscopic model of the emergence of scaling behavior in such systems, where the interaction…
In this paper we propose a general framework for modeling an insurance liability cash flow in continuous time, by generalizing the reduced-form framework for credit risk and life insurance. In particular, we assume a nontrivial dependence…
How do cost shocks pass through to prices in markets with price dispersion? We decompose the problem into two layers. In the competition layer, consumers' consideration sets determine equilibrium distributions of normalized margins. In the…
Financial markets are of much interest to researchers due to their dynamic and stochastic nature. With their relations to world populations, global economies and asset valuations, understanding, identifying and forecasting trends and…
The emerging system at the European level can be conceptualized as a pattern of relations among member states that tends to be reproduced despite disturbances in individual trajectories. The Markov property is used as an indicator of…
The LIBOR has served since the 1970s as a fundamental measure for floating term rates across multiple currencies and maturities. However, in 2017 the Financial Conduct Authority announced the discontinuation of LIBOR from the end of 2021…
This paper develops a rigorous mathematical framework for analyzing Concentrated Liquidity Market Makers (CLMMs) in Decentralized Finance (DeFi) within a continuous-time setting. We model the evolution of liquidity profiles as…
This paper addresses a key challenge in CDO modeling: achieving a perfect fit to market prices across all tranches using a single, consistent model. The existence of such a perfect-fit model implies the absence of arbitrage among CDO…
Automated market makers (AMMs) are a new prototype of decentralised exchanges which are revolutionising market interactions. The majority of AMMs are constant product markets (CPMs) where exchange rates are set by a trading function. This…