Related papers: No arbitrage and lead-lag relationships
We present an arbitrage-free non-parametric yield curve prediction model which takes the full (discretized) yield curve as state variable. We believe that absence of arbitrage is an important model feature in case of highly correlated data,…
We analyse the temporal changes in the cross correlations of returns on the New York Stock Exchange. We show that lead-lag relationships between daily returns of stocks vanished in less than twenty years. We have found that even for high…
In multivariate time series systems, lead-lag relationships reveal dependencies between time series when they are shifted in time relative to each other. Uncovering such relationships is valuable in downstream tasks, such as control,…
We propose a unified analysis of a whole spectrum of no-arbitrage conditions for financial market models based on continuous semimartingales. In particular, we focus on no-arbitrage conditions weaker than the classical notions of No…
This paper does not suppose a priori that the evolution of the price of a financial asset is a semimartingale. Since possible strategies of investors are self-financing, previous prices are forced to be finite quadratic variation processes.…
The classical discrete time model of proportional transaction costs relies on the assumption that a feasible portfolio process has solvent increments at each step. We extend this setting in two directions, allowing for convex transaction…
With the daily and minutely data of the German DAX and Chinese indices, we investigate how the return-volatility correlation originates in financial dynamics. Based on a retarded volatility model, we may eliminate or generate the…
We introduce a new stochastic duration model for transaction times in asset markets. We argue that widely accepted rules for aggregating seemingly related trades mislead inference pertaining to durations between unrelated trades: while any…
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 derive integral tests for the existence and absence of arbitrage in a financial market with one risky asset which is either modeled as stochastic exponential of an Ito process or a positive diffusion with Markov switching. In particular,…
An extensive empirical literature documents a generally negative correlation, named the "leverage effect," between asset returns and changes of volatility. It is more challenging to establish such a return-volatility relationship for jumps…
We study how trading costs are reflected in equilibrium returns. To this end, we develop a tractable continuous-time risk-sharing model, where heterogeneous mean-variance investors trade subject to a quadratic transaction cost. The…
Consider a financial market with nonnegative semimartingales which does not need to have a num\'{e}raire. We are interested in the absence of arbitrage in the sense that no self-financing portfolio gives rise to arbitrage opportunities,…
We prove a version of the fundamental theorem of asset pricing (FTAP) in continuous time that is based on the strict no-arbitrage condition and that is applicable to both frictionless markets and markets with proportional transaction costs.…
This paper formulates a model of utility for a continuous time framework that captures the decision-maker's concern with ambiguity about both volatility and drift. Corresponding extensions of some basic results in asset pricing theory are…
We propose a method to infer lead-lag networks of traders from the observation of their trade record as well as to reconstruct their state of supply and demand when they do not trade. The method relies on the Kinetic Ising model to describe…
A well known result in stochastic analysis reads as follows: for an $\mathbb{R}$-valued super-martingale $X = (X_t)_{0\leq t \leq T}$ such that the terminal value $X_T$ is non-negative, we have that the entire process $X$ is non-negative.…
This paper addresses the question of how an arbitrage-free semimartingale model is affected when stopped at a random horizon. We focus on No-Unbounded-Profit-with-Bounded-Risk (called NUPBR hereafter) concept, which is also known in the…
This paper derives the expressions of correlations between prices of two assets, returns of two assets, and price-return correlations of two assets that depend on statistical moments and correlations of the current values, past values, and…
Long-term relative arbitrage exists in markets where the excess growth rate of the market portfolio is bounded away from zero. Here it is shown that under a time-homogeneity hypothesis this condition will also imply the existence of…