Related papers: Volatility and Arbitrage
This study delves into the intricate realm of risk evaluation within the domain of specific financial derivatives, notably options. Unlike other financial instruments, like bonds, options are susceptible to broader risks. A distinctive…
Fluctuations of observables as functions of time, or "fluctuation patterns", are studied in a chaotic microscopically reversible system that has irreversibly reached a nonequilibrium stationary state. Supposing that during a certain, long…
We extend and test empirically the multifractal model of asset returns based on a multiplicative cascade of volatilities from large to small time scales. The multifractal description of asset fluctuations is generalized into a multivariate…
This paper presents a stochastic model for discrete-time trading in financial markets where trading costs are given by convex cost functions and portfolios are constrained by convex sets. The model does not assume the existence of a cash…
We generalize classical results on the existence of optimal portfolios in discrete time frictionless market models to models with capital gains taxes. We consider the realistic but mathematically challenging rule that losses do not trigger…
We consider the problem of maximizing portfolio value when an agent has a subjective view on asset value which differs from the traded market price. The agent's trades will have a price impact which affect the price at which the asset is…
We propose a general interpretation for long-range correlation effects in the activity and volatility of financial markets. This interpretation is based on the fact that the choice between `active' and `inactive' strategies is subordinated…
Large variations in stock prices happen with sufficient frequency to raise doubts about existing models, which all fail to account for non-Gaussian statistics. We construct simple models of a stock market, and argue that the large…
In this paper, we focus on the estimation of historical volatility of asset prices from high-frequency data. Stochastic volatility models pose a major statistical challenge: since in reality historical volatility is not observable, its…
We show that the cost of market orders and the profit of infinitesimal market-making or -taking strategies can be expressed in terms of directly observable quantities, namely the spread and the lag-dependent impact function. Imposing that…
In this article we consider an optimization problem of expected utility maximization of continuous-time trading in a financial market. This trading is constrained by a benchmark for a utility-based shortfall risk measure. The market…
We study the problem of maximising terminal utility for an agent facing model uncertainty, in a frictionless discrete-time market with one safe asset and finitely many risky assets. We show that an optimal investment strategy exists if the…
In robust combinatorial optimization, we would like to find a solution that performs well under all realizations of an uncertainty set of possible parameter values. How we model this uncertainty set has a decisive influence on the…
We study a continuous-time portfolio optimization problem under an explicit constraint on the Deviation Conditional Value-at-Risk (DCVaR), defined as the difference between the CVaR and the expected terminal wealth. While the mean-CVaR…
This paper studies a continuous-time market {under stochastic environment} where an agent, having specified an investment horizon and a target terminal mean return, seeks to minimize the variance of the return with multiple stocks and a…
In this paper we seek to demonstrate the predictability of stock market returns and explain the nature of this return predictability. To this end, we introduce investors with different investment horizons into the news-driven, analytic,…
"Fundamental theorem of asset pricing" roughly states that absence of arbitrage opportunity in a market is equivalent to the existence of a risk-neutral probability. We give a simple counterexample to this oversimplified statement. Prices…
We show that a trader, who starts with no initial wealth and is not allowed to borrow money or short sell assets, is theoretically able to attain positive wealth by continuous trading, provided that she has perfect foresight of future asset…
In a Markovian model for a financial market, we characterize the best arbitrage with respect to the market portfolio that can be achieved using nonanticipative investment strategies, in terms of the smallest positive solution to a parabolic…
We contrast Arbitrage Pricing Theory (APT), the theoretical basis for the development of financial instruments, with a dynamical picture of an interacting market, in a simple setting. The proliferation of financial instruments apparently…