Related papers: Implied Basket Correlation Dynamics
Market conditions change continuously. However, in portfolio's investment strategies, it is hard to account for this intrinsic non-stationarity. In this paper, we propose to address this issue by using the Inverse Covariance Clustering…
Forward-looking correlations are of interest in different financial applications, including factor-based asset pricing, forecasting stock-price movements or pricing index options. With a focus on non-FX markets, this paper defines necessary…
Traditional statistical estimation, or statistical inference in general, is static, in the sense that the estimate of the quantity of interest does not change the future evolution of the quantity. In some sequential estimation problems…
Volatility prediction--an essential concept in financial markets--has recently been addressed using sentiment analysis methods. We investigate the sentiment of annual disclosures of companies in stock markets to forecast volatility. We…
In an incomplete market, including liquidly-traded European options in an investment portfolio could potentially improve the expected terminal utility for a risk-averse investor. However, unlike the Sharpe ratio, which provides a concise…
The left tail of the implied volatility skew, coming from quotes on out-of-the-money put options, can be thought to reflect the market's assessment of the risk of a huge drop in stock prices. We analyze how this market information can be…
In several observational contexts where different raters evaluate a set of items, it is common to assume that all raters draw their scores from the same underlying distribution. However, a plenty of scientific works have evidenced the…
In this paper we present an interacting-agent model of stock markets. We describe a stock market through an Ising-like model in order to formulate the tendency of traders getting to be influenced by the other traders' investment attitudes…
In the option valuation literature, the shortcomings of one factor stochastic volatility models have traditionally been addressed by adding jumps to the stock price process. An alternate approach in the context of option pricing and…
This paper performs the numerical analysis and the computation of a Spread option in a market with imperfect liquidity. The number of shares traded in the stock market has a direct impact on the stock's price. Thus, we consider a…
This note discusses some of the aspects of a model for the covariance of equity returns based on a simple "isotropic" structure in which all pairwise correlations are taken to be the same value. The effect of the structure on feasible…
Physics-based simulation is essential for developing and evaluating robot manipulation policies, particularly in scenarios involving deformable objects and complex contact interactions. However, existing simulators often struggle to balance…
The state price density of a basket, even under uncorrelated Black-Scholes dynamics, does not allow for a closed from density. (This may be rephrased as statement on the sum of lognormals and is especially annoying for such are used most…
Financial markets are a classical example of complex systems as they comprise many interacting stocks. As such, we can obtain a surprisingly good description of their structure by making the rough simplification of binary daily returns.…
In this paper we take a look at a simple portfolio insurance strategy using a protective put and computationally derive the investor's governing utility structures underlying such a strategy under alternative market scenarios. Investor…
The dynamics of the equal-time cross-correlation matrix of multivariate financial time series is explored by examination of the eigenvalue spectrum over sliding time windows. Empirical results for the S&P 500 and the Dow Jones Euro Stoxx 50…
This paper revisits the fractional cointegrating relationship between ex-ante implied volatility and ex-post realized volatility. We argue that the concept of corridor implied volatility (CIV) should be used instead of the popular…
Principal component analysis (PCA) is a useful tool when trying to construct factor models from historical asset returns. For the implied volatilities of U.S. equities there is a PCA-based model with a principal eigenportfolio whose return…
This work addresses the problem of pricing American basket options in a multivariate setting, which includes among others, the Bachelier and the Black-Scholes models. In high dimensions, nonlinear partial differential equation methods for…
In this study, we predict next-day movements of stock end-of-day implied volatility using random forests. Through an ablation study, we examine the usefulness of different sources of predictors and expose the value of attention and…