Related papers: Density Forecasts and the Leverage Effect: Some Ev…
This paper proposes a theory of stock market predictability patterns based on a model of heterogeneous beliefs. In a discrete finite time framework, some agents receive news about an asset's fundamental value through a noisy signal. The…
Beta regression models are a suitable choice for continuous response variables on the unity interval. Random effects add further flexibility to the models and accommodate data structures such as hierarchical, repeated measures and…
Financial time series exhibit two different type of non linear correlations: (i) volatility autocorrelations that have a very long range memory, on the order of years, and (ii) asymmetric return-volatility (or `leverage') correlations that…
Barrier derivatives depend on extrema and first-passage events and are therefore highly sensitive to volatility dynamics -- especially to the instantaneous return-volatility correlation $\rho$, often called ``leverage''. This sensitivity…
Recently Carr and Wu (2004, 2005) and also Huang and Wu (2004) show that most stochastic processes used in traditional option pricing models can be cast as special cases of time-changed L\'evy processes. In particular these are models which…
This study investigates the impacts of asymmetry on the modeling and forecasting of realized volatility in the Japanese futures and spot stock markets. We employ heterogeneous autoregressive (HAR) models allowing for three types of…
Many policies hinge on a continuous variable exceeding a threshold, prompting strategic behavior by agents to stay on the favorable side. This creates density discontinuities at cutoffs, evident in contexts like taxable income, corporate…
Peters (2011a) defined an optimal leverage which maximizes the time-average growth rate of an investment held at constant leverage. It was hypothesized that this optimal leverage is attracted to 1, such that, e.g., leveraging an investment…
Several phenomena are available representing market activity: volumes, number of trades, durations between trades or quotes, volatility - however measured - all share the feature to be represented as positive valued time series. When…
Given a nonlinear model, a probabilistic forecast may be obtained by Monte Carlo simulations. At a given forecast horizon, Monte Carlo simulations yield sets of discrete forecasts, which can be converted to density forecasts. The resulting…
Time variation and persistence are crucial properties of volatility that are often studied separately in energy volatility forecasting models. Here, we propose a novel approach that allows shocks with heterogeneous persistence to vary…
Comparative evaluation of forecasts of statistical functionals relies on comparing averaged losses of competing forecasts after the realization of the quantity $Y$, on which the functional is based, has been observed. Motivated by…
In the over-the-counter market in derivatives, we sometimes see large numbers of traders taking the same position and risk. When there is this kind of concentration in the market, the position impacts the pricings of all other derivatives…
Local sensitivity diagnostics for Bayesian models are described that are analogues of frequentist measures of leverage and influence. The diagnostics are simple to calculate using MCMC. A comparison between leverage and influence allows a…
Systemic financial risk refers to the simultaneous failure or destabilization of multiple financial institutions, often triggered by contagion mechanisms or common exposures to shocks. In this paper, we present a dynamical model of bank…
A class of heterogeneous agent models is investigated where investors switch trading position whenever their motivation to do so exceeds some critical threshold. These motivations can be psychological in nature or reflect behaviour…
According to the volatility feedback effect, an unexpected increase in squared volatility leads to an immediate decline in the price-dividend ratio. In this paper, we consider the properties of stock price dynamics and option valuations…
Leveraged ETFs (L-ETFs) are exchange-traded funds that achieve price movements several times greater than an index by holding index-linked futures such as Nikkei Stock Average Index futures. It is known that when the price of an L-ETF…
Density regression characterizes the conditional density of the response variable given the covariates, and provides much more information than the commonly used conditional mean or quantile regression. However, it is often computationally…
The paper analyzes the cryptocurrency ecosystem at both the aggregate and individual levels to understand the factors that impact future volatility. The study uses high-frequency panel data from 2020 to 2022 to examine the relationship…