Related papers: Choosing the Right Return Distribution and the Exc…
We study, both analytically and numerically, an ARCH-like, multiscale model of volatility, which assumes that the volatility is governed by the observed past price changes on different time scales. With a power-law distribution of time…
Throughout history, many countries have repeatedly experienced large swings in asset prices, which are usually accompanied by large fluctuations in macroeconomic activity. One of the characteristics of the period before major economic…
The paper proposes a framework for modeling and analysis of the dynamics of supply, demand, and clearing prices in power system with real-time retail pricing and information asymmetry. Real-time retail pricing is characterized by passing on…
The dynamics of prices in financial markets has been studied intensively both experimentally (data analysis) and theoretically (models). Nevertheless, a complete stochastic characterization of volatility is still lacking. What it is well…
Financial markets exhibit highly dynamic and complex behaviors shaped by both historical price trajectories and exogenous narratives, such as news, policy interpretations, and social media sentiment. The heterogeneity in these data and the…
We show that the moments of the distribution of historic stock returns are in excellent agreement with the Heston model and not with the multiplicative model, which predicts power-law tails of volatility and stock returns. We also show that…
This paper examines how shocks to currency volatilities predict exchange rates. Using option-implied volatilities, we construct a dynamic, directed network of volatility connections. Currencies that transmit more volatility shocks, which…
We consider the dividend maximization problem including a ruin penalty in a diffusion environment. The additional penalty term is motivated by a constraint on dividend strategies. Intentionally, we use different discount rates for the…
This paper studies the income fluctuation problem with capital income risk (i.e., dispersion in the rate of return to wealth). Wealth returns and labor earnings are allowed to be serially correlated and mutually dependent. Rewards can be…
Systematic trading strategies are rule-based procedures which choose portfolios and allocate assets. In order to attain certain desired return profiles, quantitative strategists must determine a large array of trading parameters.…
We describe how the market-based average and volatility of the "actual" return, which the investors gain within their market sales, depend on the statistical moments, volatilities, and correlations of the current and past market trade…
This paper studies a robust portfolio optimization problem under the multi-factor volatility model introduced by Christoffersen et al. (2009). The optimal strategy is derived analytically under the worst-case scenario with or without…
In a financial market, for agents with long investment horizons or at times of severe market stress, it is often changes in the asset price that act as the trigger for transactions or shifts in investment position. This suggests the use of…
This paper conducts an extensive analysis of Bitcoin return series, with a primary focus on three volatility metrics: historical volatility (calculated as the sample standard deviation), forecasted volatility (derived from GARCH-type…
The paper studies pricing of insurance products focusing on the pricing of annuities under uncertainty. This pricing problem is crucial for financial decision making and was studied intensively, however, many open questions still remain. In…
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…
When humans infer underlying probabilities from stochastic observations, they exhibit biases and variability that cannot be explained on the basis of sound, Bayesian manipulations of probability. This is especially salient when beliefs are…
Being able to forcast extreme volatility is a central issue in financial risk management. We present a large volatility predicting method based on the distribution of recurrence intervals between volatilities exceeding a certain threshold…
This paper studies an optimal investing problem for a retiree facing longevity risk and living standard risk. We formulate the investing problem as a portfolio choice problem under a time-varying risk capacity constraint. We derive the…
One of the major issues studied in finance that has always intrigued, both scholars and practitioners, and to which no unified theory has yet been discovered, is the reason why prices move over time. Since there are several well-known…