Related papers: Implied Basket Correlation Dynamics
We construct a price impact model between stocks in a correlated market. For the price change of a given stock induced by the short-run liquidity of this stock itself and of the information about other stocks, we introduce a self- and a…
We develop an entropic framework to model the dynamics of stocks and European Options. Entropic inference is an inductive inference framework equipped with proper tools to handle situations where incomplete information is available. The…
Multivariate regression models are widely used in various fields such as biology and finance. In this paper, we focus on two key challenges: (a) When should we favor a multivariate model over a series of univariate models; (b) If the…
We present an interacting-agent model of speculative activity explaining bubbles and crashes in stock markets. We describe stock markets through an infinite-range Ising model to formulate the tendency of traders getting influenced by the…
Behavioral Finance has become a challenge to the scientific community. Based on the assumption that behavioral aspects of investors may explain some features of the Stock Market, we propose an agent based model to study quantitatively this…
The implied volatility surface (IVS) is a fundamental building block in computational finance. We provide a survey of methodologies for constructing such surfaces. We also discuss various topics which can influence the successful…
In the paper written by Klibanov et al, it proposes a novel method to calculate implied volatility of a European stock options as a solution to ill-posed inverse problem for the Black-Scholes equation. In addition, it proposes a trading…
This paper discusses the dynamics of Transaction Cost (TC) in Industrial Symbiosis Institutions (ISI) and provides a fair and stable mechanism for TC allocation among the involved firms in a given ISI. In principle, industrial symbiosis, as…
We derive asymptotic expansions for the prices of a variety of European and barrier-style claims in a general local-stochastic volatility setting. Our method combines Taylor series expansions of the diffusion coefficients with an expansion…
The downside risk of a portfolio of (equity)assets is generally substantially higher than the downside risk of its components. In particular in times of crises when assets tend to have high correlation, the understanding of this difference…
Diffusion auction is a new model in auction design. It can incentivize the buyers who have already joined in the auction to further diffuse the sale information to others via social relations, whereby both the seller's revenue and the…
Black-Scholes implied volatility is a quantile. The insight follows from the normalized option price being a probability on the variance scale, with the inverse Gaussian distribution providing the link. It enables analytically exact and…
The model-based investing using financial factors is evolving as a principal method for quantitative investment. The main challenge lies in the selection of effective factors towards excess market returns. Existing approaches, either…
We propose a deep hedging framework for index option portfolios, grounded in a realistic market simulator that captures the joint dynamics of S&P 500 returns and the full implied volatility surface. Our approach integrates surface-informed…
We model the impact costs of a strategy that trades a basket of correlated instruments, by extending to the multivariate case the linear propagator model previously used for single instruments. Our specification allows us to calibrate a…
In financial terms, an implied volatility surface can be described by its term structure, its skewness and its overall volatility level. We use a PCA variational auto-encoder model to perfectly represent these descriptors into a latent…
When assets are correlated, benefits of investment diversification are reduced. To measure the influence of correlations on investment performance, a new quantity - the effective portfolio size - is proposed and investigated in both…
We develop a methodology for index tracking and risk exposure control using financial derivatives. Under a continuous-time diffusion framework for price evolution, we present a pathwise approach to construct dynamic portfolios of…
We consider the problem of designing incentive-compatible, ex-post individually rational (IR) mechanisms for covering problems in the Bayesian setting, where players' types are drawn from an underlying distribution and may be correlated,…
The presence of significant cross-correlations between the synchronous time evolution of a pair of equity returns is a well-known empirical fact. The Pearson correlation is commonly used to indicate the level of similarity in the price…