Related papers: Statistical modeling of SOFR term structure
We analyze the relative price change of assets starting from basic supply/demand considerations subject to arbitrary motivations. The resulting stochastic differential equation has coefficients that are functions of supply and demand. We…
We consider a competitive market with risk-averse participants. We assume that agents' risks are measured by coherent risk measures introduced by Artzner et al. (1999). Fundamental theorems of welfare economics have long established the…
We set up a structural model to study credit risk for a portfolio containing several or many credit contracts. The model is based on a jump--diffusion process for the risk factors, i.e. for the company assets. We also include correlations…
Mandatory emission trading schemes are being established around the world. Participants of such market schemes are always exposed to risks. This leads to the creation of an accompanying market for emission-linked derivatives. To evaluate…
Forecasting central bank policy decisions remains a persistent challenge for investors, financial institutions, and policymakers due to the wide-reaching impact of monetary actions. In particular, anticipating shifts in the U.S. federal…
We introduce a new Self-Organized Criticality (SOC) model for simulating price evolution in an artificial financial market, based on a multilayer network of traders. The model also implements, in a quite realistic way with respect to…
The recent "correlation breakdown" in the modeling of credit default swaps, in which model correlations had to exceed 100% in order to reproduce market prices of supersenior tranches, is analyzed and argued to be a fundamental market…
Financial markets are a source of non-stationary multidimensional time series which has been drawing attention for decades. Each financial instrument has its specific changing-over-time properties, making its analysis a complex task. Hence,…
We study the problem of determination of asset prices in an incomplete market proposing three different but related scenarios. One scenario uses a market game approach whereas the other two are based on risk sharing or regret minimizing…
Great research efforts have been devoted to exploiting deep neural networks in stock prediction. While long-range dependencies and chaotic property are still two major issues that lower the performance of state-of-the-art deep learning…
We use standard physics techniques to model trading and price formation in a market under the assumption that order arrival and cancellations are Poisson random processes. This model makes testable predictions for the most basic properties…
It has been understood that the "local" existence of the Markowitz' optimal portfolio or the solution to the local-risk minimization problem is guaranteed by some specific mathematical structures on the underlying assets price processes…
One of the most challenging aspects in the analysis and modelling of financial markets, including Credit Default Swap (CDS) markets, is the presence of an emergent, intermediate level of structure standing in between the microscopic…
The classical linear Black--Scholes model for pricing derivative securities is a popular model in financial industry. It relies on several restrictive assumptions such as completeness, and frictionless of the market as well as the…
We present a new model for commodity pricing that enhances accuracy by integrating four distinct risk factors: spot price, stochastic volatility, convenience yield, and stochastic interest rates. While the influence of these four variables…
Prediction markets are well-studied in the case where predictions are probabilities or expectations of future random variables. In 2008, Lambert, et al. proposed a generalization, which we call "scoring rule markets" (SRMs), in which…
"What are the origins of risks?" and "How material are they?" -- these are the two most fundamental questions of any risk analysis. Quantitative Structuring -- a technology for building financial products -- provides economically meaningful…
This paper studies the problem of maximizing expected utility from terminal wealth in a semi-static market composed of derivative securities, which we assume can be traded only at time zero, and of stocks, which can be traded continuously…
We construct models for the pricing and risk management of inflation-linked derivatives. The models are rational in the sense that linear payoffs written on the consumer price index have prices that are rational functions of the state…
In this article we derive partial differential equations (PDEs) for pricing interest rate derivatives under the generalized Forward Market Model (FMM) recently presented by A. Lyashenko and F. Mercurio in \cite{lyashenkoMercurio:Mar2019} to…