Related papers: Unspanned Stochastic Volatility in the Multi-facto…
Volatility is the canonical measure of financial risk, a role largely inherited from Modern Portfolio Theory. Yet, its universality rests on restrictive efficiency assumptions that render volatility, at best, an incomplete proxy for true…
Scale invariance, collective behaviours and structural reorganization are crucial for portfolio management (portfolio composition, hedging, alternative definition of risk, etc.). This lack of any characteristic scale and such elaborated…
We introduce a multi-factor stochastic volatility model for commodities that incorporates seasonality and the Samuelson effect. Conditions on the seasonal term under which the corresponding volatility factor is well-defined are given, and…
This paper develops a flexible and computationally efficient multivariate volatility model, which allows for dynamic conditional correlations and volatility spillover effects among financial assets. The new model has desirable properties…
It is a market practice to express market-implied volatilities in some parametric form. The most popular parametrizations are based on or inspired by an underlying stochastic model, like the Heston model (SVI method) or the SABR model (SABR…
We propose a nonparametric estimator of the empirical distribution function (EDF) of the latent spot variance of the log-price of a financial asset. We show that over a fixed time span our realized EDF (or REDF) -- inferred from noisy…
The paper studies estimation of parameters of diffusion market models from historical data. The standard definition of implied volatility for these models presents its value as an implicit function of several parameters, including the…
The notion of a credit spread curve is fundamental in fixed income investing, but in practice it is not `given' and needs to be constructed from bond prices either for a particular issuer, or for a sector rating-by-rating. Rather than…
In this article we show how to analyze the covariation of bond prices nonparametrically and robustly, staying consistent with a general no-arbitrage setting. This is, in particular, motivated by the problem of identifying the number of…
The problem of robust utility maximization in an incomplete market with volatility uncertainty is considered, in the sense that the volatility of the market is only assumed to lie between two given bounds. The set of all possible models…
The LIBOR rate is currently scheduled for discontinuation, and the replacement advocated by regulators in the US is the Secured Overnight Financing Rate (SOFR). The change has the potential to disrupt the $200 trillion market of derivatives…
This dissertation investigates the ability of the Ising model to replicate statistical characteristics, or stylized facts, commonly observed in financial assets. The study specifically examines in the S&P500 index the following features:…
In this paper we investigate a utility maximization problem with drift uncertainty in a multivariate continuous-time Black-Scholes type financial market which may be incomplete. We impose a constraint on the admissible strategies that…
We introduce a new identification strategy for uncertainty shocks to explain macroeconomic volatility in financial markets. The Chicago Board Options Exchange Volatility Index (VIX) measures market expectations of future volatility, but…
We perform a large-scale simulation of an Ising-based financial market model that includes 300 asset time series. The financial system simulated by the model shows a fat-tailed return distribution and volatility clustering and exhibits…
Prior to the financial crisis mortgage securitization models increased in sophistication as did products built to insure against losses. Layers of complexity formed upon a foundation that could not support it and as the foundation crumbled…
This paper focuses on a dynamic multi-asset mean-variance portfolio selection problem under model uncertainty. We develop a continuous time framework for taking into account ambiguity aversion about both expected return rates and…
We formulate option market making as a constrained, risk-sensitive control problem that unifies execution, hedging, and arbitrage-free implied-volatility surfaces inside a single learning loop. A fully differentiable eSSVI layer enforces…
Accurate forecasting of risk is the key to successful risk management techniques. Using the largest stock index futures from twelve European bourses, this paper presents VaR measures based on their unconditional and conditional…
In this paper we estimate the conditional value-at-risk by fitting different multivariate parametric models capturing some stylized facts about multivariate financial time series of equity returns: heavy tails, negative skew, asymmetric…