Related papers: Analysis of a five-factor capital market model
We investigate financial market correlations using random matrix theory and principal component analysis. We use random matrix theory to demonstrate that correlation matrices of asset price changes contain structure that is incompatible…
This paper studies a continuous-time market {under stochastic environment} where an agent, having specified an investment horizon and a target terminal mean return, seeks to minimize the variance of the return with multiple stocks and a…
Financial markets are interconnected, with micro-currents propagating across global markets and shaping economic trends. This paper moves beyond traditional stock market indices to examine cross-sectional return distributions-15 in our…
Providing a measure of market risk is an important issue for investors and financial institutions. However, the existing models for this purpose are per definition symmetric. The current paper introduces an asymmetric capital asset pricing…
Estimation of the covariance matrix of asset returns is crucial to portfolio construction. As suggested by economic theories, the correlation structure among assets differs between emerging markets and developed countries. It is therefore…
In this paper we propose a semi-Markov modulated model of interest rates. We assume that the switching process is a semi-Markov process with finite state space E and the modulated process is a diffusive process. We derive recursive…
This paper investigates the time-varying risk-premium relation of the Chinese stock markets within the framework of cross-sectional momentum and contrarian effects by adopting the Capital Asset Pricing Model and the French-Fama three factor…
This paper estimates models of high frequency index futures returns using `around the clock' 5-minute returns that incorporate the following key features: multiple persistent stochastic volatility factors, jumps in prices and volatilities,…
In this paper, we study option pricing under Vasicek Model by a Hamiltonian approach. Since the interest rate changes with time, we split the time to maturity into infinite steps, and the matrix element during each step could be calculated…
The analytical tractability of affine (short rate) models, such as the Vasicek and the Cox-Ingersoll-Ross models, has made them a popular choice for modelling the dynamics of interest rates. However, in order to account properly for 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…
Calibration is a highly challenging task, in particular in multiple yield curve markets. This paper is a first attempt to study the chances and challenges of the application of machine learning techniques for this. We employ Gaussian…
This paper defines systematic value investing as an empirical optimization problem. Predictive modeling is introduced as a systematic value investing methodology with dynamic and optimization features. A predictive modeling process is…
The modal factor model represents a new factor model for dimension reduction in high dimensional panel data. Unlike the approximate factor model that targets for the mean factors, it captures factors that influence the conditional mode of…
This paper presents a unified multi-asset, multi-group asset-flow model that integrates three foundational frameworks from the behavioral finance literature. The model captures the dynamics of financial markets where multiple assets are…
The basis of arbitrage methods depends on the circulation of information within the framework of the financial market. Following the work of Modigliani and Miller, it has become a vital part of discussions related to the study of financial…
The stability of the inflation rate is a necessary condition for the proper functioning of any capitalist economy. In an economic environment with volatile inflation, the growth of the economy and its distribution among the agents of…
Motivated by the current fears of a potentially stagflationary global economic environment, this paper uses new and recently introduced mathematical techniques to study multivariate time series pertaining to country inflation (CPI),…
We introduce a class of Bayesian matrix dynamic factor models that accommodates time-varying volatility, outliers, and cross-sectional correlation in the idiosyncratic components. For model comparison, we employ an importance-sampling…
This paper studies a robust continuous-time Markowitz portfolio selection pro\-blem where the model uncertainty carries on the covariance matrix of multiple risky assets. This problem is formulated into a min-max mean-variance problem over…