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Standard methods and theories in finance can be ill-equipped to capture highly non-linear interactions in financial prediction problems based on large-scale datasets, with deep learning offering a way to gain insights into correlations in…
This paper proposes a new statistic to test independence between two high dimensional random vectors ${\mathbf{X}}:p_1\times1$ and ${\mathbf{Y}}:p_2\times1$. The proposed statistic is based on the sum of regularized sample canonical…
We study the dynamic interactions and structural changes in global financial indices in the years 1998-2012. We apply a principal component analysis (PCA) to cross-correlation coefficients of the stock indices. We calculate the correlations…
Firm foundation theory estimates a security's firm fundamental value based on four determinants: expected growth rate, expected dividend payout, the market interest rate and the degree of risk. In contrast, other views of decision-making in…
The measured correlations of financial time series in subsequent epochs change considerably as a function of time. When studying the whole correlation matrices, quasi-stationary patterns, referred to as market states, are seen by applying…
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…
This paper proposes a novel framework to test for slope heterogeneity between time-varying coefficients in panel data models. Our test not only allows us to detect whether the coefficient functions are the same across all units or not, but…
Eigenvalue analysis is a well-established tool for stability analysis of dynamical systems. However, there are situations where eigenvalues miss some important features of physical models. For example, in models of incompressible fluid…
We investigate financial market correlations using random matrix theory and principal component analysis. We use random matrix theory to demonstrate that correlation matrices of asset price changes contain structure that is incompatible…
The global financial system is highly complex, with cross-border interconnections and interdependencies. In this highly interconnected environment, local financial shocks and events can be easily amplified and turned into global events.…
In this paper we compare market price fluctuations with the response to fundamental price drops within the Lux-Marchesi model which is able to reproduce the most important stylized facts of real market data. Major differences can be…
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…
In this study, Bayesian inference is developed for structural vector autoregressive models in which the structural parameters are identified via Markov-switching heteroskedasticity. In such a model, restrictions that are just-identifying in…
The association between log-price increments of exchange-traded equities, as measured by their spot correlation estimated from high-frequency data, exhibits a pronounced upward-sloping and almost piecewise linear relationship at the…
In this paper, we study a continuous time structural asset value model for two correlated firms using a two-dimensional Brownian motion. We consider the situation of incomplete information, where the information set available to the market…
Using the eigenvalues and eigenvectors of correlations matrices of some of the main financial market indices in the world, we show that high volatility of markets is directly linked with strong correlations between them. This means that…
Geometric Brownian motion (GBM) is a model for systems as varied as financial instruments and populations. The statistical properties of GBM are complicated by non-ergodicity, which can lead to ensemble averages exhibiting exponential…
Stylized facts can be regarded as constraints for any modeling attempt of price dynamics on a financial market, in that an empirically reasonable model has to reproduce these stylized facts at least qualitatively. The dynamics of market…
This study introduces the Quantitative Geometric Market Structuralist (QGMS) framework a hybrid analytical methodology integrating geometric pattern recognition with quantitative mathematical modeling to identify terminal zones of…
A time-dependent global fiber-bundle model of fracture with continuous damage is formulated in terms of a set of coupled non-linear differential equations. A first integral of this set is analytically obtained. The time evolution of the…