Related papers: Liquidity Costs, Idiosyncratic Volatility and Expe…
This paper studies the effect of quarterly earnings reports on the stock price. The profitability of the stock is modelled by geometric Brownian diffusion and the Constant Elasticity of Variance model. We fit several variations of…
This paper presents closed-form analytical formulas for pricing volatility and variance derivatives with nonlinear payoffs under discrete-time observations. The analysis is based on a probabilistic approach assuming that the underlying…
We assess the advantage of combining univariate and multivariate portfolio risk forecasts with the aid of forecast reconciliation techniques. In our analyzes, we assume knowledge of portfolio weights, a standard for portfolio risk…
This paper examines how shocks to currency volatilities predict exchange rates. Using option-implied volatilities, we construct a dynamic, directed network of volatility connections. Currencies that transmit more volatility shocks, which…
The analysis of high-frequency financial data is often impeded by the presence of noise. This article is motivated by intraday return data in which market microstructure noise appears to be rough, that is, best captured by a continuous-time…
Recent research has documented a significant rise in the volatility (e.g., expected squared change) of individual incomes in the U.S. since the 1970s. Existing measures of this trend abstract from individual heterogeneity, effectively…
This paper considers the finite horizon portfolio rebalancing problem in terms of mean-variance optimization, where decisions are made based on current information on asset returns and transaction costs. The study's novelty is that the…
For many households, investing for retirement is one of the most significant decisions and is fraught with uncertainty. In a classic study in behavioral economics, Benartzi and Thaler (1999) found evidence using bar charts that investors…
This note discusses some of the aspects of a model for the covariance of equity returns based on a simple "isotropic" structure in which all pairwise correlations are taken to be the same value. The effect of the structure on feasible…
We introduce a microscopic model for the dynamics of the order book to study how the lack of liquidity influences price fluctuations. We use the average density of the stored orders (granularity $g$) as a proxy for liquidity. This leads to…
Invoice or payment dilution is the gap between the approved invoice amount and the actual collection is a significant source of non credit risk and margin loss in supply chain finance. Traditionally, this risk is managed through the buyer's…
A technique for on-line estimation of spot volatility for high-frequency data is developed. The algorithm works directly on the transaction data and updates the volatility estimate immediately after the occurrence of a new transaction.…
We consider the pricing problem related to payoffs that can have discontinuities of polynomial growth. The asset price dynamic is modeled within the Black and Scholes framework characterized by a stochastic volatility term driven by a…
We apply the concepts of utility based pricing and hedging of derivatives in stochastic volatility markets and introduce a new class of "reciprocal affine" models for which the indifference price and optimal hedge portfolio for pure…
Prediction-market price moves are widely treated as informationally equivalent: a price jump is read the same way regardless of whether it reflects durable Bayesian updating, transient liquidity pressure, strategic position adjustment, or…
In Part II of this paper, we concentrate our analysis on the price dynamical model with the moving average rules developed in Part I of this paper. By decomposing the excessive demand function, we reveal that it is the interplay between…
This paper revisits the fractional cointegrating relationship between ex-ante implied volatility and ex-post realized volatility. We argue that the concept of corridor implied volatility (CIV) should be used instead of the popular…
We establish innovative liquidity premium measures, and construct liquidity-adjusted return and volatility to model assets with extreme liquidity, represented by a portfolio of selected crypto assets, and upon which we develop a set of…
We study the construction and rebalancing of sparse index-tracking portfolios from an operational research perspective, with explicit emphasis on uncertainty quantification and implementability. The decision variables are portfolio weights…
Dynamic jumps in the price and volatility of an asset are modelled using a joint Hawkes process in conjunction with a bivariate jump diffusion. A state space representation is used to link observed returns, plus nonparametric measures of…