Related papers: Equity Premium Puzzle or Faulty Economic Modelling…
Emphasizing the statistics of jumps crossing the strike and local time, we develop a decomposition of equity option risk premiums. Operationalizing this theoretical treatment, we equip the pricing kernel process with unspanned risks, embed…
In this paper, I present the first comprehensive, around-the-clock analysis of systematic jump risk by combining high-frequency market data with contemporaneous news narratives identified as the underlying causes of market jumps. These…
We give a new predictive mathematical model for macroeconomics, which deals specifically with asset prices and earnings fluctuations, in the presence of a dynamic economy involving mergers, acquisitions, and hostile takeovers. Consider a…
This paper investigates portfolio selection within a continuous-time financial market with regime-switching and beliefs-dependent utilities. The market coefficients and the investor's utility function both depend on the market regime, which…
In this paper, we study the robust optimal investment and risk control problem for an insurer who owns the insider information about the financial market and the insurance market under model uncertainty. Both financial risky asset process…
Most decision theories, including expected utility theory, rank dependent utility theory and cumulative prospect theory, assume that investors are only interested in the distribution of returns and not in the states of the economy in which…
Stochastic dividend discount models (Hurley and Johnson, 1994 and 1998, Yao, 1997) present expressions for the expected value of stock prices when future dividends evolve according to some random scheme. In this paper we try to offer a more…
This paper investigates the optimal retirement decision, investment, and consumption strategies in a market with jump diffusion, taking into account habit persistence and stock-wage correlation. Our analysis considers multiple stocks and a…
It is often reported in forecast combination literature that a simple average of candidate forecasts is more robust than sophisticated combining methods. This phenomenon is usually referred to as the "forecast combination puzzle". Motivated…
One approach to the analysis of stochastic fluctuations in market prices is to model characteristics of investor behaviour and the complex interactions between market participants, with the aim of extracting consequences in the aggregate.…
In a seminal paper in 1973, Black and Scholes argued how expected distributions of stock prices can be used to price options. Their model assumed a directed random motion for the returns and consequently a lognormal distribution of asset…
Estimation of tail quantities, such as expected shortfall or Value at Risk, is a difficult problem. We show how the theory of nonlinear expectations, in particular the Data-robust expectation introduced in [5], can assist in the…
Emerging markets such as India provide investors with returns far greater than those in developed markets; taking the average returns from the period 1995 to 2014 the returns are 4.714% to 3.276% of the developed market. The majority of…
We find that when measured in terms of dollar-turnover, and once $\beta$-neutralised and Low-Vol neutralised, the Size Effect is alive and well. With a long term t-stat of $5.1$, the "Cold-Minus-Hot" (CMH) anomaly is certainly not less…
Prepayment risk embedded in fixed-rate mortgages forms a significant fraction of a financial institution's exposure, and it receives particular attention because of the magnitude of the underlying market. The embedded prepayment option…
An influential theory of increasing returns has been proposed by the economist W. B. Arthur in the '80s to explain the lock-in phenomenon between two competing commercial products. In the most simplified situation there are two competing…
In this paper, we investigate the robust optimal reinsurance,investment,and internal surplus distribution (i.e., consumption) problem for an insurer with Epstein-Zin recursive preferences in an incomplete market. It is assumed that the…
We give a stochastic microscopic modelling of stock markets driven by continuous double auction. If we take into account the mimetic behavior of traders, when they place limit order, our virtual markets shows the power-law tail of the…
The instability of historical risk factor correlations renders their use in estimating portfolio risk extremely questionable. In periods of market stress correlations of risk factors have a tendency to quickly go well beyond estimated…
The value of stocks, indices and other assets, are examples of stochastic processes with unpredictable dynamics. In this paper, we discuss asymmetries in short term price movements that can not be associated with a long term positive trend.…