Related papers: Ponzi Funds
The growth of the exhange-traded fund (ETF) industry has given rise to the trading of options written on ETFs and their leveraged counterparts {(LETFs)}. We study the relationship between the ETF and LETF implied volatility surfaces when…
Financial models do not merely analyse markets, but actively shape them. This effect, known as performativity, describes how financial theories and the subsequent actions based on them influence market processes, by creating self-fulfilling…
A leveraged ETF is a fund aimed at achieving a rate of return several times greater than that of the underlying asset such as Nikkei 225 futures. Recently, it has been suggested that rebalancing trades of a leveraged ETF may destabilize the…
Recent developments in deep learning techniques have motivated intensive research in machine learning-aided stock trading strategies. However, since the financial market has a highly non-stationary nature hindering the application of…
Daily leveraged exchange traded funds amplify gains and losses of their underlying benchmark indexes on a daily basis. The result of going long in a daily leveraged ETF for more than one day is less clear. Here, bounds are given for the…
Heavy particles suspended in turbulent flow possess inertia and are ejected from violent vortical structures by centrifugal forces. Once piled up along particle paths, this small-scale mechanism leads to an effective large-scale drift. This…
This paper introduces a heterogeneous macroeconomic model of a Proof-of-Stake (PoS) network to analyze the long-term centralizing effects of external traditional finance (TradFi) yields. We model a continuum of rational actors divided into…
Modelling accurately financial price variations is an essential step underlying portfolio allocation optimization, derivative pricing and hedging, fund management and trading. The observed complex price fluctuations guide and constraint our…
We propose a novel explanation for classic international macro puzzles regarding capital flows and portfolio investment, which builds on modern macro-finance models of experience-based belief formation. Individual experiences of past…
A technique from stochastic portfolio theory [Fernholz, 1998] is applied to analyse equity returns of Small, Mid and Large cap portfolios in an emerging market through periods of growth and regional crises, up to the onset of the global…
We review the dynamics of the returns of Leveraged Exchange Traded Funds (LETFs) and propose a new measure of realized volatility: Shortfall from Maximum Convexity. We show that SMC has a more intuitive interpretation and provides more…
Do vulnerabilities in Decentralized Finance (DeFi) destabilize traditional short-term funding markets? While the prevailing ``Contagion Hypothesis'' posits that stablecoin reserve liquidations may transmit distress to traditional markets…
This study replicates and adapts the experiment of Hoelzl and Rustichini (2005), which examined overplacement, i.e., overconfidence in relative self-assessments, by analyzing individuals' voting preferences between a performance-based and a…
We empirically analyze the reversion of financial market trends with time horizons ranging from minutes to decades. The analysis covers equities, interest rates, currencies and commodities and combines 14 years of futures tick data, 30…
Volatility, as a primary indicator of financial risk, forms the foundation of classical frameworks such as Markowitz's Portfolio Theory and the Efficient Market Hypothesis (EMH). However, its conventional use rests on assumptions-most…
We consider a banking network represented by a system of stochastic differential equations coupled by their drift. We assume a core-periphery structure, and that the banks in the core hold a bubbly asset. The banks in the periphery have not…
Inequality and its consequences are the subject of intense recent debate. Using a simplified model of the economy, we address the relation between inequality and liquidity, the latter understood as the frequency of economic exchanges.…
We explore a model of the interaction between banks and outside investors in which the ability of banks to issue inside money (short-term liabilities believed to be convertible into currency at par) can generate a collapse in asset prices…
Recent empirical evidence has highlighted the crucial role of jumps in both price and volatility within the cryptocurrency market. In this paper, we integrate price--volatility co-jumps and volatility short-term dependency into a coherent…
Following a long tradition of physicists who have noticed that the Ising model provides a general background to build realistic models of social interactions, we study a model of financial price dynamics resulting from the collective…