Related papers: Leveraged ETF Investing
The instability of historical risk factor correlations renders their use in estimating portfolio risk extremely questionable. In periods of market stress correlations of risk factors have a tendency to quickly go well beyond estimated…
Existence of stochastic financial equilibria giving rise to semimartingale asset prices is established under a general class of assumptions. These equilibria are expressed in real terms and span complete markets or markets with withdrawal…
Hedging a portfolio containing autocallable notes presents unique challenges due to the complex risk profile of these financial instruments. In addition to hedging, pricing these notes, particularly when multiple underlying assets are…
We study neural networks as nonparametric estimation tools for the hedging of options. To this end, we design a network, named HedgeNet, that directly outputs a hedging strategy. This network is trained to minimise the hedging error instead…
Statistical arbitrage methods identify mispricings in securities with the goal of building portfolios which are weakly correlated with the market. In pairs trading, an arbitrage opportunity is identified by observing relative price…
We consider the problem of the statistical uncertainty of the correlation matrix in the optimization of a financial portfolio. We show that the use of clustering algorithms can improve the reliability of the portfolio in terms of the ratio…
Portfolio optimisation is essential in quantitative investing, but its implementation faces several practical difficulties. One particular challenge is converting optimal portfolio weights into real-life trades in the presence of realistic…
Extracting maximal information from experimental data requires access to the likelihood function, which however is never directly available for complex experiments like those performed at high energy colliders. Theoretical predictions are…
Random features provide a practical framework for large-scale kernel approximation and supervised learning. It has been shown that data-dependent sampling of random features using leverage scores can significantly reduce the number of…
We study the estimation of leverage effect and volatility of volatility by using high-frequency data with the presence of jumps. We first construct spot volatility estimator by using the empirical characteristic function of the…
The third moment variation of a financial asset return process is defined by the quadratic covariation between the return and square return processes. The skew and fat tail risk of an underlying asset can be hedged using a third moment…
The introduction of leverage on prediction-market event contracts raises three structurally distinct questions that have not been addressed jointly: how leverage changes manipulation incentives, how it interacts with informed-trading rents,…
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…
An equiangular tight frame (ETF) yields a type of optimal packing of lines in a Euclidean space. ETFs seem to be rare, and all known infinite families of them arise from some type of combinatorial design. In this paper, we introduce a new…
This paper examines the possibility of using derivative-implied risk premia to explain stock returns. The rapid development of derivative markets has led to the possibility of trading various kinds of risks, such as credit and interest rate…
It has been assumed that arbitrage profits are not possible in efficient markets, because future prices are not predictable. Here we show that predictability alone is not a sufficient measure of market efficiency. We instead propose to…
In this article, we present a review of the recent developments on the topic of Multilevel Monte Carlo (MLMC) algorithm, in the paradigm of applications in financial engineering. We specifically focus on the recent studies conducted in two…
This paper investigates the so-called leakage effect of trading strategies generated functionally from rank-dependent portfolio generating functions. This effect measures the loss in wealth of trading strategies due to renewing the…
Prize linked savings accounts provide a return in the form of randomly chosen accounts receiving large cash prizes, in lieu of a guaranteed and uniform interest rate. This model became legal for American national banks upon bipartisan…
We propose a flexible framework for hedging a contingent claim by holding static positions in vanilla European calls, puts, bonds, and forwards. A model-free expression is derived for the optimal static hedging strategy that minimizes the…