Related papers: Analysis of a five-factor capital market model

We provide a full classification of all attainable term structure shapes in the two-factor Vasicek model of interest rates. In particular, we show that the shapes normal, inverse, humped, dipped and hump-dip are always attainable. In…

We study the optimal investment problem for a continuous time incomplete market model such that the risk-free rate, the appreciation rates and the volatility of the stocks are all random; they are assumed to be independent from the driving…

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…

In this paper, we assume an insure is allowed to purchase proportional reinsurance and can invest his or her wealth into the financial market where a savings account, stocks and bonds are available. Different from classical optimal…

This paper re-examines the problem of estimating risk premia in linear factor pricing models. Typically, the data used in the empirical literature are characterized by weakness of some pricing factors, strong cross-sectional dependence in…

On a periodic basis, publicly traded companies report fundamentals, financial data including revenue, earnings, debt, among others. Quantitative finance research has identified several factors, functions of the reported data that…

I develop a feasible weighted projected principal component (FPPC) analysis for factor models in which observable characteristics partially explain the latent factors. This novel method provides more efficient and accurate estimators than…

Empirical evidence suggests that fixed income markets exhibit unspanned stochastic volatility (USV), that is, that one cannot fully hedge volatility risk solely using a portfolio of bonds. While [1] showed that no two-factor…

In this dissertation two simple models of stock exchange are developed and simulated numerically. The first is characterized by centralized trading with a market maker. Unfortunately, this model is unable to generate realistic market…

The classical derivation of the well-known Vasicek model for interest rates is reformulated in terms of the associated pricing kernel. An advantage of the pricing kernel method is that it allows one to generalize the construction to the…

Quantitative Investment, built on the solid foundation of robust financial theories, is at the center stage in investment industry today. The essence of quantitative investment is the multi-factor model, which explains the relationship…

There are various metrics for financial risk, such as value at risk (VaR), expected shortfall, expected/unexpected loss, etc. When estimating these metrics, it was very common to assume Gaussian distribution for the asset returns, which may…

We investigate how and when to diversify capital over assets, i.e., the portfolio selection problem, from a signal processing perspective. To this end, we first construct portfolios that achieve the optimal expected growth in i.i.d.…

Our article considers a regression model with observed factors. The observed factors have a flexible stochastic volatility structure that has separate dynamics for the volatilities and the correlation matrix. The correlation matrix of the…

We build a state-of-the-art dynamic model of private asset allocation that considers five key features of private asset markets: (1) the illiquid nature of private assets, (2) timing lags between capital commitments, capital calls, and…

We introduce a method for describing eigenvalue distributions of correlation matrices from multidimensional time series. Using our newly developed matrix H theory, we improve the description of eigenvalue spectra for empirical correlation…

We introduce a new set of consistent measures of risks, in terms of the semi-invariants of pdf's, such that the centered moments and the cumulants of the portfolio distribution of returns that put more emphasis on the tail the…

In a seminal paper in 1973, Black and Scholes argued how expected distributions of stock prices can be used to price options. Their model assumed a directed random motion for the returns and consequently a lognormal distribution of asset…

We propose tensor time series imputation when the missing pattern in the tensor data can be general, as long as any two data positions along a tensor fibre are both observed for enough time points. The method is based on a tensor time…

Tracking the build-up of financial vulnerabilities is a key component of financial stability policy. Due to the complexity of the financial system, this task is daunting, and there have been several proposals on how to manage this goal. One…