Related papers: Portfolio Diversification Revisited
Using frequency distributions of daily closing price time series of several financial market indexes, we investigate whether the bias away from an equiprobable sequence distribution found in the data, predicted by algorithmic information…
We study some regularity properties in locally stationary Markov models which are fundamental for controlling the bias of nonparametric kernel estimators. In particular, we provide an alternative to the standard notion of derivative process…
Many real-world problems encountered in several disciplines deal with the modeling of time-series containing different underlying dynamical regimes, for which probabilistic approaches are very often employed. In this paper we describe…
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…
Using a Levy process we generalize formulas in Bo et al.(2010) for the Esscher transform parameters for the log-normal distribution which ensure the martingale condition holds for the discounted foreign exchange rate. Using these values of…
This paper introduces a novel methodology for index return forecasting, blending highly correlated stock prices, advanced deep learning techniques, and intricate factor integration. Departing from conventional cap-weighted approaches, our…
This paper considers the constrained portfolio optimization in a generalized life-cycle model. The individual with a stochastic income manages a portfolio consisting of stocks, a bond, and life insurance to maximize his or her consumption…
Any optimization algorithm based on the risk parity approach requires the formulation of portfolio total risk in terms of marginal contributions. In this paper we use the independence of the underlying factors in the market to derive the…
Determining potential probability distributions with a given causal graph is vital for causality studies. To bypass the difficulty in characterizing latent variables in a Bayesian network, the nested Markov model provides an elegant…
We extend to the multi-asset case the framework of a discrete time model of a single asset financial market developed in Ghoulmie et al (2005). In particular, we focus on adaptive agents with threshold behavior allocating their resources…
Mean-reverting portfolios with volatility and sparsity constraints are of prime interest to practitioners in finance since they are both profitable and well-diversified, while also managing risk and minimizing transaction costs. Three main…
The pricing of derivatives tied to baskets of assets demands a sophisticated framework that aligns with the available market information to capture the intricate non-linear dependency structure among the assets. We describe the dynamics of…
Non-equilibrium phenomena occur not only in physical world, but also in finance. In this work, stochastic relaxational dynamics (together with path integrals) is applied to option pricing theory. A recently proposed model (by Ilinski et…
We propose an alternative approach towards cost mitigation in volatility-managed portfolios based on smoothing the predictive density of an otherwise standard stochastic volatility model. Specifically, we develop a novel variational Bayes…
Phylogenetics uses alignments of molecular sequence data to learn about evolutionary trees. Substitutions in sequences are modelled through a continuous-time Markov process, characterised by an instantaneous rate matrix, which standard…
This paper investigates the equilibrium portfolio selection for smooth ambiguity preferences in a continuous-time market. The investor is uncertain about the risky asset's drift term and updates the subjective belief according to the…
The classical approach to multivariate extreme value modelling assumes that the joint distribution belongs to a multivariate domain of attraction. This requires each marginal distribution be individually attracted to a univariate extreme…
In this paper we extend the series of our studies on the properties of an interacting particle model for market microstructure. In our earlier work we defined a Markov process on the majority opinion of the agents, obtained the transition…
Portfolio diversification and active risk management are essential parts of financial analysis which became even more crucial (and questioned) during and after the years of the Global Financial Crisis. We propose a novel approach to…
Consider a one-sided Markov additive process with an upper and a lower barrier, where each can be either reflecting or terminating. For both defective and non-defective processes and all possible scenarios we identify the corresponding…