Related papers: Implied Basket Correlation Dynamics
This paper studies equity basket options -- i.e., multi-dimensional derivatives whose payoffs depend on the value of a weighted sum of the underlying stocks -- and develops a new and innovative approach to ensure consistency between options…
In the paper, we characterize the asymptotic behavior of the implied volatility of a basket call option at large and small strikes in a variety of settings with increasing generality. First, we obtain an asymptotic formula with an error…
Information coefficient (IC) is a widely used metric for measuring investment managers' skills in selecting stocks. However, its adequacy and effectiveness for evaluating stock selection models has not been clearly understood, as IC from a…
We develop a new stock market index that captures the chaos existing in the market by measuring the mutual changes of asset prices. This new index relies on a tensor-based embedding of the stock market information, which in turn frees it…
Recent literature seek to forecast implied volatility derived from equity, index, foreign exchange, and interest rate options using latent factor and parametric frameworks. Motivated by increased public attention borne out of the…
In this paper we discuss the basket options valuation for a jump-diffusion model. The underlying asset prices follow some correlated local volatility diffusion processes with systematic jumps. We derive a forward partial integral…
Cross-sectional "Information Coefficient" (IC) is a widely and deeply accepted measure in portfolio management. The paper gives an insight into IC in view of high-dimensional directional statistics: IC is a linear operator on the components…
Decisions taken in our everyday lives are based on a wide variety of information so it is generally very difficult to assess what are the strategies that guide us. Stock market therefore provides a rich environment to study how people take…
The possibility that the collective dynamics of a set of stocks could lead to a specific basket violating the efficient market hypothesis is investigated. Precisely, we show that it is systematically possible to form a basket with a…
Option prices encode the market's collective outlook through implied density and implied volatility. An explicit link between implied density and implied volatility translates the risk-neutrality of the former into conditions on the latter…
The frequent occurrence of natural disasters has posed significant challenges to society, necessitating the urgent development of effective risk management strategies. From the early informal community-based risk sharing mechanisms to…
The vast majority of market impact studies assess each product individually, and the interactions between the different order flows are disregarded. This strong approximation may lead to an underestimation of trading costs and possible…
In this paper, we present a method for constructing a (static) portfolio of co-maturing European options whose price sign is determined by the skewness level of the associated implied volatility. This property holds regardless of the…
Executing a basket of co-integrated assets is an important task facing investors. Here, we show how to do this accounting for the informational advantage gained from assets within and outside the basket, as well as for the permanent price…
Estimation of the covariance matrix of asset returns is crucial to portfolio construction. As suggested by economic theories, the correlation structure among assets differs between emerging markets and developed countries. It is therefore…
Cross-sectional dispersion in firm-level realized skewness is significantly and negatively related to future stock market returns. The predictive power of skewness dispersion is robust to in-sample and out-of-sample estimation and is…
We explore credit risk pricing by modeling equity as a call option and debt as the difference between the firm's asset value and a put option, following the structural framework of the Merton model. Our approach proceeds in two stages:…
A simple method is proposed to estimate the instantaneous correlations between state variables in a hybrid system from the empirical correlations between observable market quantities such as spot rate, stock price and implied volatility.…
For distributed estimations in a sensor network, the consistency and accuracy of an estimator are greatly affected by the unknown correlations between individual estimates. An inconsistent or too conservative estimate may degrade the…
We establish several new stylised facts concerning the intra-day seasonalities of stock dynamics. Beyond the well known U-shaped pattern of the volatility, we find that the average correlation between stocks increases throughout the day,…