Related papers: Can one hear the shape of a target zone?

The currency carry trade is the investment strategy that involves selling low interest rate currencies in order to purchase higher interest rate currencies, thus profiting from the interest rate differentials. This is a well known financial…

This paper develops a dynamic monetary model to study the (in)stability of the fractional reserve banking system. The model shows that the fractional reserve banking system can endanger stability in that equilibrium is more prone to exhibit…

For a risk vector $V$, whose components are shared among agents by some random mechanism, we obtain asymptotic lower and upper bounds for the individual agents' exposure risk and the aggregated risk in the market. Risk is measured by…

We establish a statistical learning theoretical framework aimed at extrapolation, or out-of-domain generalization, on the unobserved tails of covariates in continuous regression problems. Our strategy involves performing statistical…

Effective risk control must make a tradeoff between the microprudential risk of exogenous shocks to individual institutions and the macroprudential risks caused by their systemic interactions. We investigate a simple dynamical model for…

Random multiplicative growth with redistribution generates stationary Pareto wealth tails in the Bouchaud-M\'ezard model, but assumes a fixed multiplicative noise intensity. This is restrictive for physical and financial growth processes,…

Traders and investors involved in an option contract having the underlying stock in range bound are likely to lose their initial investment. Timing in buying an option contract is of capital importance. In a recent article [1] the…

We develop a finite horizon continuous time market model, where risk averse investors maximize utility from terminal wealth by dynamically investing in a risk-free money market account, a stock written on a default-free dividend process,…

We study the performance of the euro/Swiss franc exchange rate in the extraordinary period from September 6, 2011 and January 15, 2015 when the Swiss National Bank enforced a minimum exchange rate of 1.20 Swiss francs per euro. Based on the…

We study the optimal trade-off between expectation and tail risk for regret distribution in the stochastic multi-armed bandit model. We fully characterize the interplay among three desired properties for policy design: worst-case…

We consider strictly stationary heavy tailed time series whose finite-dimensional exponent measures are concentrated on axes, and hence their extremal properties cannot be tackled using classical multivariate regular variation that is…

This paper proposes a theory of stock market predictability patterns based on a model of heterogeneous beliefs. In a discrete finite time framework, some agents receive news about an asset's fundamental value through a noisy signal. The…

We empirically investigated the relationships between the degree of efficiency and the predictability in financial time-series data. The Hurst exponent was used as the measurement of the degree of efficiency, and the hit rate calculated…

We introduce a class of short-rate models that exhibit a ``higher for longer'' phenomenon. Specifically, the short-rate is modeled as a general time-homogeneous one-factor Markov diffusion on a finite interval. The lower endpoint is assumed…

I examine global dynamics in a monetary model with overlapping generations of finite-horizon agents and a binding lower bound on nominal interest rates. Debt targeting rules exacerbate the possibility of self-fulfilling liquidity traps, for…

Time series graphical models have recently received considerable attention for characterizing (conditional) dependence structures in multivariate time series. In many applications, the multivariate series exhibit variable-partitioned…

We study tail risk dynamics in high-frequency financial markets and their connection with trading activity and market uncertainty. We introduce a dynamic extreme value regression model accommodating both stationary and local unit-root…

We study a continuous treatment effect model in the presence of treatment spillovers through social networks. We assume that one's outcome is affected not only by his/her own treatment but also by a (weighted) average of his/her neighbors'…

We address microscopic, agent based, and macroscopic, stochastic, modeling of the financial markets combining it with the exogenous noise. The interplay between the endogenous dynamics of agents and the exogenous noise is the primary…

We propose a random walk model of asset returns where the parameters depend on market stress. Stress is measured by, e.g., the value of an implied volatility index. We show that model parameters including standard deviations and…