Related papers: The Reactive Beta Model
In most real scenarios the construction of a risk-neutral portfolio must be performed in discrete time and with transaction costs. Two human imposed constraints are the risk-aversion and the profit maximization, which together define a…
This paper introduces a methodology for constructing a market index composed of a liquid risky asset and a liquid risk-free asset that achieves a fixed target volatility. Existing volatility-targeting strategies typically scale portfolio…
We examine strategically incorporating broad stock market leveraged exchange-traded funds (LETFs) into investment portfolios. We demonstrate that easily understandable and implementable strategies can enhance the risk-return profile of a…
An extensive empirical literature documents a generally negative correlation, named the "leverage effect," between asset returns and changes of volatility. It is more challenging to establish such a return-volatility relationship for jumps…
In an analysis of the US, the UK, and the German stock market we find a change in the behavior based on the stock's beta values. Before 2006 risky trades were concentrated on stocks in the IT and technology sector. Afterwards risky trading…
We present a simple agent-based model of a financial system composed of leveraged investors such as banks that invest in stocks and manage their risk using a Value-at-Risk constraint, based on historical observations of asset prices. The…
What is the best market-neutral implementation of classical Equity Factors? Should one use the specific predictability of the short-leg to build a zero beta Long-Short portfolio, in spite of the specific costs associated to shorting, or is…
Most models for barrier pricing are designed to let a market maker tune the model-implied covariance between moves in the asset spot price and moves in the implied volatility skew. This is often implemented with a local…
We derive a closed-form expression capturing the degree of Relative Risk Aversion (RRA) of investors for non-"fair" lotteries. We argue that our formula is superior to earlier methods that have been proposed, as it is a function of only…
This study presents contemporaneous modeling of asset return and price range within the framework of stochastic volatility with leverage. A new representation of the probability density function for the price range is provided, and its…
This work develops an agent-based model for the study of how the leverage through the use of repurchase agreements can function as a mechanism for the propagation and amplification of financial shocks in a financial system. Based on the…
Multifractal processes are a relatively new tool of stock market analysis. Their power lies in the ability to take multiple orders of autocorrelations into account explicitly. In the first part of the paper we discuss the framework of the…
Sentiment analysis, widely used in product reviews, also impacts financial markets by influencing asset prices through microblogs and news articles. Despite research in sentiment-driven finance, many studies focus on sentence-level…
In this paper we revisit Burnett (2021) \& Burnett and Williams (2021)'s notion of hedging valuation adjustment (HVA), originally intended to deal with dynamic hedging frictions such as transaction costs, in the direction of model risk. The…
This paper builds on recent research that focuses on regression modeling of continuous bounded data, such as proportions measured on a continuous scale. Specifically, it deals with beta regression models with mixed effects from a Bayesian…
We study the estimation of leverage effect and volatility of volatility by using high-frequency data with the presence of jumps. We first construct spot volatility estimator by using the empirical characteristic function of the…
We test various volatility models using the Bitcoin spot price series. Our models include HIST, EMA ARCH, GARCH, and EGARCH, models. Both of our in-sample-fit and out-of-sample-forecast results suggest that GARCH and EGARCH models perform…
Using high frequency data, we have studied empirically the change of volatility, also called volatility derivative, for various time horizons. In particular, the correlation between the volatility derivative and the volatility realized in…
We focus on a behavioral model, that has been recently proposed in the literature, whose rational can be traced back to the Half-Full/Half-Empty glass metaphor. More precisely, we generalize the Half-Full/Half-Empty approach to the context…
The beta regression model is a useful framework to model response variables that are rates or proportions, that is to say, response variables which are continuous and restricted to the interval (0,1). As with any other regression model,…