Related papers: Does the leverage effect affect the return distrib…
In informationally efficient financial markets, option prices and this implied volatility should immediately be adjusted to new information that arrives along with a jump in underlying's return, whereas gradual changes in implied volatility…
Distributions of assets returns exhibit a slight skewness. In this note we show that our model of endogenous price formation \cite{Reimann2006} creates an asymmetric return distribution if the price dynamics are a process in which…
We introduce an autoregressive-type model of prices in financial market taking into account the self-modulation effect. We find that traders are mainly using strategies with weighted feedbacks of past prices. These feedbacks are responsible…
This study develops a multi-factor framework where not only market risk is considered but also potential changes in the investment opportunity set. Although previous studies find no clear evidence about a positive and significant relation…
Systemic financial risk refers to the simultaneous failure or destabilization of multiple financial institutions, often triggered by contagion mechanisms or common exposures to shocks. In this paper, we present a dynamical model of bank…
The distribution of recurrence times or return intervals between extreme events is important to characterize and understand the behavior of physical systems and phenomena in many disciplines. It is well known that many physical processes in…
Multivariate probability density functions of returns are constructed in order to model the empirical behavior of returns in a financial time series. They describe the well-established deviations from the Gaussian random walk, such as an…
Using Trades and Quotes data from the Paris stock market, we show that the random walk nature of traded prices results from a very delicate interplay between two opposite tendencies: long-range correlated market orders that lead to…
This paper analyzes and explicitly solves a class of long-term average impulse control problems with a specific mean-field interaction. The underlying process is a general one-dimensional diffusion with appropriate boundary behavior. The…
We introduce the concept of virtual volatility. This simple but new measure shows how to quantify the uncertainty in the forecast of the drift component of a random walk. The virtual volatility also is a useful tool in understanding the…
Empirical distributions of wealth and income can be reproduced using simplified agent-based models of economic interactions, analogous to microscopic collisions of gas particles. Building upon these models of freely interacting agents, we…
We model a closed economic system with interactions that generates the features of empirical wealth distribution across all wealth brackets, namely a Gibbsian trend in the lower and middle wealth range and a Pareto trend in the higher…
High-dimensional linear regression with interaction effects is broadly applied in research fields such as bioinformatics and social science. In this paper, we first investigate the minimax rate of convergence for regression estimation in…
We consider a tick-by-tick model of price formation, in which buy and sell orders are modeled as self-exciting point processes (Hawkes process), similar to the one in [Bacry, Delattre, Hoffmann, Muzy, Modelling microstructure noise with…
The conventional wisdom of mean-variance (MV) portfolio theory asserts that the nature of the relationship between risk and diversification is a decreasing asymptotic function, with the asymptote approximating the level of portfolio…
Asymmetries in volatility spillovers are highly relevant to risk valuation and portfolio diversification strategies in financial markets. Yet, the large literature studying information transmission mechanisms ignores the fact that bad and…
The coefficient of restitution of a spherical particle in contact with a flat plate is investigated as a function of the impact velocity. As an experimental observation we notice non-trivial (non-Gaussian) fluctuations of the measured…
It is usually assumed that stock prices reflect a balance between large numbers of small individual sellers and buyers. However, over the past fifty years mutual funds and other institutional shareholders have assumed an ever increasing…
We study the effect of long-range elastic interactions in the dynamical behavior of an elastic chain driven quasi-statically in a quenched random pinning potential and in the strong pinning limit. This is a generic situation occuring in…
It is commonly believed that the correlations between stock returns increase in high volatility periods. We investigate how much of these correlations can be explained within a simple non-Gaussian one-factor description with time…