Related papers: Understanding the Excess Bond Premium
The investor is interested in the expected return and he is also concerned about the risk and the uncertainty assumed by the investment. One of the most popular concepts used to measure the risk and the uncertainty is the variance and/or…
Emphasizing the statistics of jumps crossing the strike and local time, we develop a decomposition of equity option risk premiums. Operationalizing this theoretical treatment, we equip the pricing kernel process with unspanned risks, embed…
Environmental, social and governance (ESG) engagement of companies moved into the focus of public attention over recent years. With the requirements of compulsory reporting being implemented and investors incorporating sustainability in…
We investigate entropy as a financial risk measure. Entropy explains the equity premium of securities and portfolios in a simpler way and, at the same time, with higher explanatory power than the beta parameter of the capital asset pricing…
Economic Policy Uncertainty (EPU) is a critical indicator in economic studies, while it can be used to forecast a recession. Under higher levels of uncertainty, firms' owners cut their investment, which leads to a longer post-recession…
The socioeconomic impact of pollution naturally comes with uncertainty due to, e.g., current new technological developments in emissions' abatement or demographic changes. On top of that, the trend of the future costs of the environmental…
Many complex systems exhibit extreme events far more often than expected for a normal distribution. This work examines how self-similar bursts of activity across several orders of magnitude can emerge from first principles in systems that…
Extreme political shocks may reshape economies not only through contemporaneous disruption but by altering beliefs about the distribution of future states. We study how such belief ruptures affect the cost of capital, expectations, and…
We develop a representation of a decision maker's uncertainty based on e-variables. Like the Bayesian posterior, this *e-posterior* allows for making predictions against arbitrary loss functions that may not be specified ex ante. Unlike the…
This paper studies the 28 time series of Libor rates, classified in seven maturities and four currencies), during the last 14 years. The analysis was performed using a novel technique in financial economics: the Complexity-Entropy Causality…
We introduce the entropic measure transform (EMT) problem for a general process and prove the existence of a unique optimal measure characterizing the solution. The density process of the optimal measure is characterized using a…
This study proposes a new method of incorporating emotions from newspaper articles into macroeconomic forecasts, attempting to forecast industrial production and consumer prices leveraging narrative and sentiment from global newspapers. For…
Explainable boosting machines (EBMs) are popular "glass-box" models that learn a set of univariate functions using boosting trees. These achieve explainability through visualizations of each feature's effect. However, unlike linear model…
This paper aims to show how some popular topics on social networks can be used to predict online newspaper views, related to the topics. Newspapers site and many social networks, become a good source of data to analyse and explain complex…
Regression plays a key role in many research areas and its variable selection is a classic and major problem. This study emphasizes cost of predictors to be purchased for future use, when we select a subset of them. Its economic aspect is…
This study leverages narrative from global newspapers to construct theme-based knowledge graphs about world events, demonstrating that features extracted from such graphs improve forecasts of industrial production in three large economies…
This project works with the risk model developed by Li et al. (2015) and quests modelling, estimating and pricing insurance for risks brought in by innovative technologies, or other emerging or latent risks. The model considers two…
Numerous kinds of uncertainties may affect an economy, e.g. economic, political, and environmental ones. We model the aggregate impact by the uncertainties on an economy and its associated financial market by randomised mixtures of L\'evy…
The increasing prevalence of political bias in news media calls for greater public awareness of it, as well as robust methods for its detection. While prior work in NLP has primarily focused on the lexical bias captured by linguistic…
We analyze the dynamical response of the world's financial community to various types of unexpected events, including the 9/11 terrorist attacks as they unfolded on a minute-by-minute basis. We find that there are various 'species' of news,…