Related papers: A Market Driver Volatility Model via Policy Improv…
This paper presents a methodology to introduce time-dependent parameters for a wide family of models preserving their analytic tractability. This family includes hybrid models with stochastic volatility, stochastic interest-rates, jumps and…
The correlated stochastic volatility models constitute a natural extension of the Black and Scholes-Merton framework: here the volatility is not a constant, but a stochastic process correlated with the price log-return one. At present,…
The dynamics of market prices is described as the evolution of opinions in the trading community regarding future market behavior. The price then is a function of the voting process of the market players in favor to raise or reduce the…
Volatility measures the amplitude of price fluctuations. Despite it is one of the most important quantities in finance, volatility is not directly observable. Here we apply a maximum likelihood method which assumes that price and volatility…
We propose how to quantify high-frequency market sentiment using high-frequency news from NASDAQ news platform and support vector machine classifiers. News arrive at markets randomly and the resulting news sentiment behaves like a…
Agent-based models provide a constructive approach to studying emergent dynamics in life-like systems composed of interacting, adaptive agents. Financial markets serve as a canonical example of such systems, where collective price dynamics…
We propose a heterogeneous agent market model (HAM) in continuous time. The market is populated by fundamental traders and chartists, who both use simple linear trading rules. Most of the related literature explores stability, price…
We present an option pricing formula for European options in a stochastic volatility model. In particular, the volatility process is defined using a fractional integral of a diffusion process and both the stock price and the volatility…
We consider a stochastic factor financial model where the asset price process and the process for the stochastic factor depend on an observable Markov chain and exhibit an affine structure. We are faced with a finite time investment horizon…
We provide a detailed importance sampling analysis for variance reduction in stochastic volatility models. The optimal change of measure is obtained using a variety of results from large and moderate deviations: small-time, large-time,…
The vast majority of market impact studies assess each product individually, and the interactions between the different order flows are disregarded. This strong approximation may lead to an underestimation of trading costs and possible…
The impact of trades on asset prices is a crucial aspect of market dynamics for academics, regulators and practitioners alike. Recently, universal and highly nonlinear master curves were observed for price impacts aggregated on all…
We propose a price impact model where changes in prices are purely driven by the order flow in the market. The stochastic price impact of market orders and the arrival rates of limit and market orders are functions of the market liquidity…
The dynamics of financial markets are driven by the interactions between participants, as well as the trading mechanisms and regulatory frameworks that govern these interactions. Decision-makers would rather not ignore the impact of other…
We solve the first-passage problem for the Heston random diffusion model. We obtain exact analytical expressions for the survival and hitting probabilities to a given level of return. We study several asymptotic behaviors and obtain…
We propose a model to quantify the effect of parameter uncertainty on the option price in the Heston model. More precisely, we present a Hamilton-Jacobi-Bellman framework which allows us to evaluate best and worst case scenarios under an…
Given the promising results on joint modeling of SPX/VIX smiles of the recently introduced quadratic rough Heston model, we consider a multi-asset market making problem on SPX and its derivatives, e.g. VIX futures, SPX and VIX options. The…
Gradient-based methods for optimisation of objectives in stochastic settings with unknown or intractable dynamics require estimators of derivatives. We derive an objective that, under automatic differentiation, produces low-variance…
We consider a tick-by-tick model of price formation, in which buy and sell orders are modeled as self-exciting point processes (Hawkes process), similar to the one in [Bacry, Delattre, Hoffmann, Muzy, Modelling microstructure noise with…
We introduce an affine extension of the Heston model where the instantaneous variance process contains a jump part driven by $\alpha$-stable processes with $\alpha\in(1,2]$. In this framework, we examine the implied volatility and its…