Related papers: Leveraged ETF Investing
We develop a mathematical framework to optimize leveraged staking ("loopy") strategies in Decentralized Finance (DeFi), in which a staked asset is supplied as collateral, the underlying is borrowed and re-staked, and the loop can be…
Previous research has shown that for stock indices, the most likely time until a return of a particular size has been observed is longer for gains than for losses. We establish that this so-called gain/loss asymmetry is present also for…
In stochastic portfolio theory, a relative arbitrage is an equity portfolio which is guaranteed to outperform a benchmark portfolio over a finite horizon. When the market is diverse and sufficiently volatile, and the benchmark is the market…
Equity premium, the surplus returns of stocks over bonds, has been an enduring puzzle. While numerous prior works approach the problem assuming the utility of money is invariant across contexts, our approach implies that in efficient…
This paper aims to more effectively manage and mitigate stock market risks by accurately characterizing financial market returns and volatility. We enhance the Stochastic Volatility (SV) model by incorporating fat-tailed distributions and…
Research in quantitative finance has demonstrated that reinforcement learning (RL) methods have delivered promising outcomes in the context of hedging financial portfolios. For example, hedging a portfolio of European options using RL…
We model leverage as stochastic but independent of return shocks and of volatility and perform likelihood-based inference via the recently developed iterated filtering algorithm using S&P500 data, contributing new evidence to the still slim…
The coupled nonlinear volatility and option pricing model presented recently by Ivancevic is investigated, which generates a leverage effect, i.e., stock volatility is (negatively) correlated to stock returns, and can be regarded as a…
We review the dynamics of the returns of Leveraged Exchange Traded Funds (LETFs) and propose a new measure of realized volatility: Shortfall from Maximum Convexity. We show that SMC has a more intuitive interpretation and provides more…
A macroeconomic model based on the economic variables (i) assets, (ii) leverage (defined as debt over asset) and (iii) trust (defined as the maximum sustainable leverage) is proposed to investigate the role of credit in the dynamics of…
This paper presents hedging strategies for European and exotic options in a Levy market. By applying Taylor's Theorem, dynamic hedging portfolios are con- structed under different market assumptions, such as the existence of power jump…
Large language models (LLMs) have demonstrated promising performance in various financial applications, though their potential in complex investment strategies remains underexplored. To address this gap, we investigate how LLMs can predict…
We study in details the skew of stock option smiles, which is induced by the so-called leverage effect on the underlying -- i.e. the correlation between past returns and future square returns. This naturally explains the anomalous…
We consider a portfolio with call option and the corresponding underlying asset under the standard assumption that stock-market price represents a random variable with lognormal distribution. Minimizing the variance (hedging risk) of the…
How should financial institutions hedge their balance sheets against interest rate risk when managing long-term assets and liabilities? We address this question by proposing a bond portfolio solution based on ambiguity-averse preferences,…
In the stochastic volatility models for multivariate daily stock returns, it has been found that the estimates of parameters become unstable as the dimension of returns increases. To solve this problem, we focus on the factor structure of…
We propose a novel approach to infer investors' risk preferences from their portfolio choices, and then use the implied risk preferences to measure the efficiency of investment portfolios. We analyze a dataset spanning a period of six…
Stochastic portfolio theory aims at finding relative arbitrages, i.e. trading strategies which outperform the market with probability one. Functionally generated portfolios, which are deterministic functions of the market weights, are an…
Recently, the application of advanced machine learning methods for asset management has become one of the most intriguing topics. Unfortunately, the application of these methods, such as deep neural networks, is difficult due to the data…
In this article, we consider the small-time asymptotics of options on a \emph{Leveraged Exchange-Traded Fund} (LETF) when the underlying Exchange Traded Fund (ETF) exhibits both local volatility and jumps of either finite or infinite…