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We start with the idea that open quantum systems can be used to represent financial markets by modelling events from the external environment and their impact on the market price. We show how to characterize distinct orbits of the time…
This paper develops a dynamic monetary model to study the (in)stability of the fractional reserve banking system. The model shows that the fractional reserve banking system can endanger stability in that equilibrium is more prone to exhibit…
In the aftermath of the global financial crisis, much attention has been paid to investigating the appropriateness of the current practice of default risk modeling in banking, finance and insurance industries. A recent empirical study by…
We propose a novel measure to investigate firms' product specialisation: product coreness, that captures the centrality of exported products within the firm's export basket. We study product coreness using firm-product level data between…
Grassroots currencies are means for turning mutual trust into liquidity, with the goal of providing foundations for grassroots digital economies. Grassroots coins are units of debt that can be issued by anyone -- people, corporations,…
We revisit the problem of pricing and hedging plain vanilla single-currency interest rate derivatives using multiple distinct yield curves for market coherent estimation of discount factors and forward rates with different underlying rate…
A market with defaultable bonds where the bond dynamics is in a Heath-Jarrow-Morton setting and the forward rates are driven by an infinite number of Levy factors is considered. The setting includes rating migrations driven by a Markov…
We present cross and time series analysis of price fluctuations in the U.S. Treasury fixed income market. By means of techniques borrowed from statistical physics we show that the correlation among bonds depends strongly on the maturity and…
The paper analyzes the mathematics of the relationship between the default risk and yield-to-maturity of a coupon bond. It is shown that the yield-to-maturity is driven not only by the default probability and recovery rate of the bond but…
In econometrics, the Efficient Market Hypothesis posits that asset prices reflect all available information in the market. Several empirical investigations show that market efficiency drops when it undergoes extreme events. Many models for…
The Black-Scholes-Merton model is a mathematical model for the dynamics of a financial market that includes derivative investment instruments, and its formula provides a theoretical price estimate of European-style options. The model's…
We develop a general term structure framework taking stochastic discontinuities explicitly into account. Stochastic discontinuities are a key feature in interest rate markets, as for example the jumps of the term structures in…
In its semi-strong form, the Efficient Market Hypothesis (EMH) implies that technical analysis will not reveal any hidden statistical trends via intermarket data analysis. If technical analysis on intermarket data reveals trends which can…
We present a generative framework for pricing European-style basket options by learning the conditional terminal distribution of the log arithmetic-weighted basket return. A Mixture Density Network (MDN) maps time-varying market inputs…
This paper constructs and studies the long-term factorization of affine pricing kernels into discounting at the rate of return on the long bond and the martingale component that accomplishes the change of probability measure to the long…
Financial Transmission Rights (FTRs) enable electricity market participants to hedge congestion risk in Day Ahead Market (DAM) operations, but for the market to be solvent, Independent System Operators (ISOs) must ensure that FTR payouts do…
Discount is the difference between the face value of a bond and its present value. I propose an arbitrage-free dynamic framework for discount models, which provides an alternative to the Heath--Jarrow--Morton framework for forward rates. I…
With negative growth in real production in many countries and debt levels which become an increasing burden on developed societies, the calls for a change in economic policy and even the monetary system become louder and increasingly…
Statistical models are essential to get a better understanding of the role of disorder in brittle disordered solids. Fiber bundle models play a special role as a paradigm, with a very good balance of simplicity and non-trivial effects. We…
This report was originally written as an industry white paper on Hedge Funds. This paper gives an overview to Hedge Funds, with a focus on risk management issues. We define and explain the general characteristics of Hedge Funds, their main…