Related papers: A Proposal for Multi-asset Generalised Variance Sw…
We propose a route for the evaluation of risk based on a transformation of the covariance matrix. The approach uses a `potential' or `objective' function. This allows us to rescale data from different assets (or sources) such that each data…
Forecasting the volatility of financial assets is essential for various financial applications. This paper addresses the challenging task of forecasting the volatility of financial assets with limited historical data, such as new issues or…
Markowitz mean-variance portfolios with sample mean and covariance as input parameters feature numerous issues in practice. They perform poorly out of sample due to estimation error, they experience extreme weights together with high…
We derive measure change formulae required to price midcurve swaptions in the forward swap annuity measure with stochastic annuities' ratios. We construct the corresponding linear and exponential terminal swap rate pricing models and show…
This paper introduces a unique and valuable research design aimed at analyzing Bitcoin price volatility. To achieve this, a range of models from the Markov Switching-GARCH and Stochastic Autoregressive Volatility (SARV) model classes are…
We develop a liquidity-sensitive multivariate volatility framework to improve the estimation of time-varying covariance structures under market frictions. We introduce two novel portfolio-level liquidity measures, liquidity jump and…
High precision analytical approximation is proposed for variance-covariance based risk allocation in a portfolio of risky assets. A general case of a single-period multi-factor Merton-type model with stochastic recovery is considered. The…
Since risky positions in multivariate portfolios can be offset by various choices of capital requirements that depend on the exchange rules and related transaction costs, it is natural to assume that the risk measures of random vectors are…
In this paper, we propose a market model with returns assumed to follow a multivariate normal tempered stable distribution defined by a mixture of the multivariate normal distribution and the tempered stable subordinator. This distribution…
We propose a method for extending a given asset pricing formula to account for two additional sources of risk: the risk associated with future changes in market--calibrated parameters and the remaining risk associated with idiosyncratic…
In this paper, we consider the optimal portfolio liquidation problem under the dynamic mean-variance criterion and derive time-consistent solutions in three important models. We give adapted optimal strategies under a reconsidered…
This paper uses simulation-based portfolio optimization to mitigate the left tail risk of the portfolio. The contribution is twofold. (i) We propose the Markov regime-switching GARCH model with multivariate normal tempered stable innovation…
We consider Markov-switching regression models, i.e. models for time series regression analyses where the functional relationship between covariates and response is subject to regime switching controlled by an unobservable Markov chain.…
We introduce a universal framework for mean-covariance robust risk measurement and portfolio optimization. We model uncertainty in terms of the Gelbrich distance on the mean-covariance space, along with prior structural information about…
Portfolio allocation with gross-exposure constraint is an effective method to increase the efficiency and stability of selected portfolios among a vast pool of assets, as demonstrated in Fan et al (2008). The required high-dimensional…
We propose three measures of mutual dependence between multiple random vectors. All the measures are zero if and only if the random vectors are mutually independent. The first measure generalizes distance covariance from pairwise dependence…
We consider option pricing using a discrete-time Markov switching stochastic volatility with co-jump model, which can model volatility clustering and varying mean-reversion speeds of volatility. For pricing European options, we develop a…
We derive a general multivariate theory for realised characteristics of `model-free discretisation-invariant swaps', so-called because the standard no-arbitrage assumption of martingale forward prices is sufficient to derive fair-value swap…
A Markovian modulation captures the trend in the market and influences the market coefficients accordingly. The different scenarios presented by the market are modeled as the distinct states of a discrete-time Markov chain. In our paper, we…
In complete markets, there are risky assets and a riskless asset. It is assumed that the riskless asset and the risky asset are traded continuously in time and that the market is frictionless. In this paper, we propose a new method for…