Related papers: Analysis of a five-factor capital market model
Capital distribution curve is defined as log-log plot of normalized stock capitalizations ranked in descending order. The curve displays remarkable stability over periods of time. Theory of exchangeable distributions on set partitions,…
A plethora of static and dynamic models exist to forecast Value-at-Risk and other quantile-related metrics used in financial risk management. Industry practice tends to favour simpler, static models such as historical simulation or its…
We propose a novel asset allocation model using a Markov process of states defined by clustered efficient frontier coefficients. While most research in Markov models of the market characterize regimes using return and volatility, we instead…
We introduce a Vasicek-type short rate model which has two additional parameters representing memory effect. This model presents better results in yield curve fitting than the classical Vasicek model. We derive closed-form expressions for…
The present paper provides a study of high-dimensional statistical arbitrage that combines factor models with the tools from stochastic control, obtaining closed-form optimal strategies which are both interpretable and computationally…
Dynamic factor models are often estimated by point-estimation methods, disregarding parameter uncertainty. We propose a method accounting for parameter uncertainty by means of posterior approximation, using variational inference. Our…
In the paper we develop mathematical tools of quantile hedging in incomplete market. Those could be used for two significant applications: o calculating the \textbf{optimal capital requirement imposed by Solvency II} (Directive 2009/138/EC…
We address the problem of parameter estimation for diffusion driven stochastic volatility models through Markov chain Monte Carlo (MCMC). To avoid degeneracy issues we introduce an innovative reparametrisation defined through…
We consider a model for interest rates, where the short rate is given by a time-homogenous, one-dimensional affine process in the sense of Duffie, Filipovic and Schachermayer. We show that in such a model yield curves can only be normal,…
This paper develops a flexible and computationally efficient multivariate volatility model, which allows for dynamic conditional correlations and volatility spillover effects among financial assets. The new model has desirable properties…
We present a mathematical model of a market with $m$ shares traded across $n$ investor groups, each one with similar motivations and trading strategies. The market of each asset consists of a fixed amount of cash and shares (no additions…
We propose a novel class of multivariate GARCH models that incorporate realized measures of volatility and correlations. The key innovation is an unconstrained vector parametrization of the conditional correlation matrix, which enables the…
In this paper, we consider the nonstationary matrix-valued time series with common stochastic trends. Unlike the traditional factor analysis which flattens matrix observations into vectors, we adopt a matrix factor model in order to fully…
We introduce a multivariate stochastic volatility model for asset returns that imposes no restrictions to the structure of the volatility matrix and treats all its elements as functions of latent stochastic processes. When the number of…
The Efficient Market Hypothesis has been a staple of economics research for decades. In particular, weak-form market efficiency -- the notion that past prices cannot predict future performance -- is strongly supported by econometric…
This article introduces a novel dynamic framework to Bayesian model averaging for time-varying parameter quantile regressions. By employing sequential Markov chain Monte Carlo, we combine empirical estimates derived from dynamically chosen…
We provide closed-form market equilibrium formula consolidating informational imperfections and investors beliefs. Based on Merton's model, we characterize the equilibrium expected excess returns vector with incomplete information. We then…
We propose a new framework for modeling stochastic local volatility, with potential applications to modeling derivatives on interest rates, commodities, credit, equity, FX etc., as well as hybrid derivatives. Our model extends the…
Factor modeling of asset returns has been a dominant practice in investment science since the introduction of the Capital Asset Pricing Model (CAPM) and the Arbitrage Pricing Theory (APT). The factors, which account for the systematic risk,…
A unified approach to quintessence and inflation is investigated with the use of a single scalar field. It is argued that successful potentials have to approximate a combination of exponential and inverse power-law decline in the limit of…