Related papers: Risk-Neutral Market Simulation
It is shown that delta hedging provides the optimal trading strategy in terms of minimal required initial capital to replicate a given terminal payoff in a continuous-time Markovian context. This holds true in market models where no…
This paper describes simulations and analysis of flash crash scenarios in an agent-based modelling framework. We design, implement, and assess a novel high-frequency agent-based financial market simulator that generates realistic…
The proposed model modifies option pricing formulas for the basic case of log-normal probability distribution providing correspondence to formulated criteria of efficiency and completeness. The model is self-calibrating by historic…
Jumps and market microstructure noise are stylized features of high-frequency financial data. It is well known that they introduce bias in the estimation of volatility (including integrated and spot volatilities) of assets, and many methods…
Volatility estimation is a central problem in financial econometrics, but becomes particularly challenging when jump activity is high, a phenomenon observed empirically in highly traded financial securities. In this paper, we revisit the…
In financial applications, reinforcement learning (RL) agents are commonly trained on historical data, where their actions do not influence prices. However, during deployment, these agents trade in live markets where their own transactions…
Empirical analysis of the foreign exchange market is conducted based on methods to quantify similarities among multi-dimensional time series with spectral distances introduced in [A.-H. Sato, Physica A, 382 (2007) 258--270]. As a result it…
The Ginibre point process is one of the main examples of deter- minantal point processes on the complex plane. It forms a recurring model in stochastic matrix theory as well as in pratical applications. However, this model has mostly been…
We present results on simulations of a stock market with heterogeneous, cumulative information setup. We find a non-monotonic behaviour of traders' returns as a function of their information level. Particularly, the average informed agents…
We look at discovering the impact of market microstructure on equitability for market participants at public exchanges such as the New York Stock Exchange or NASDAQ. Are these environments equitable venues for low-frequency participants…
We consider the problem of option pricing under stochastic volatility models, focusing on the linear approximation of the two processes known as exponential Ornstein-Uhlenbeck and Stein-Stein. Indeed, we show they admit the same limit…
We perform the real-time lattice simulation of an open quantum system, which is based on the Schwinger-Keldysh path integral representation of the Lindblad formalism. Although the real-time simulation generally suffers from the sign…
Proof that under simple assumptions, such as constraints of Put-Call Parity, the probability measure for the valuation of a European option has the mean derived from the forward price which can, but does not have to be the risk-neutral one,…
We consider a liquidation problem in which a risk-averse trader tries to liquidate a fixed quantity of an asset in the presence of market impact and random price fluctuations. The trader encounters a trade-off between the transaction costs…
We propose a framework for computing, optimizing and integrating with respect to a smooth marginal likelihood in statistical models that involve high-dimensional parameters/latent variables and continuous low-dimensional hyperparameters.…
We introduce a class of utility-based market makers that always accept orders at their risk-neutral prices. We derive necessary and sufficient conditions for such market makers to have bounded loss. We prove that hyperbolic absolute risk…
We price and replicate a variety of claims written on the log price $X$ and quadratic variation $[X]$ of a risky asset, modeled as a positive semimartingale, subject to stochastic volatility and jumps. The pricing and hedging formulas do…
Value-at-risk (VaR) has been playing the role of a standard risk measure since its introduction. In practice, the delta-normal approach is usually adopted to approximate the VaR of portfolios with option positions. Its effectiveness,…
A continuous-path semimartingale market model with wealth processes discounted by a riskless asset is considered. The numeraire portfolio is the unique strictly positive wealth process that, when used as a benchmark to denominate all other…
In an incomplete continuous-time securities market with uncertainty generated by Brownian motions, we derive closed-form solutions for the equilibrium interest rate and market price of risk processes. The economy has a finite number of…