Related papers: Fair Volatility: A Framework for Reconceptualizing…
We amend and extend the Chiarella model of financial markets to deal with arbitrary long-term value drifts in a consistent way. This allows us to improve upon existing calibration schemes, opening the possibility of calibrating individual…
We study the temporal fluctuations in time-dependent stock prices (both individual and composite) as a stochastic phenomenon using general techniques and methods of nonequilibrium statistical mechanics. In particular, we analyze stock price…
Financial markets are inherently non-stationary, with shifting volatility regimes that alter asset co-movements and return distributions. Standard portfolio optimization methods, typically built on stationarity or regime-agnostic…
The aim of this study is to present proofs for new theorems. Basic thoughts of new definitions emerge from the decision-making under uncertainty in economics and finance. Shape of the certain utility curve is central to standard definitions…
Classical asset pricing relies on the risk-neutral measure $Q$ for valuation, yet its economic interpretation is typically anchored in a physical measure $P$. This creates an inherent asymmetry: pricing is governed by $Q$, while meaning…
Financial volatility risk and its relation to a business cycle-related intrinsic time is addressed through a multiple round evolutionary quantum game equilibrium leading to turbulence and multifractal signatures in the financial returns and…
In the past few decades considerable effort has been expended in characterizing and modeling financial time series. A number of stylized facts have been identified, and volatility clustering or the tendency toward persistence has emerged as…
This paper proposes a semiparametric stochastic volatility (SV) model that relaxes the restrictive Gaussian assumption in both the return and volatility error terms, allowing them to follow flexible, nonparametric distributions with…
Robust optimization provides a principled framework for decision-making under uncertainty, with broad applications in finance, engineering, and operations research. In portfolio optimization, uncertainty in expected returns and covariances…
We define risk-free portfolios using three gauge invariant differential operators that require such portfolios to be insensitive to price changes, to be self-financing, and to produce a zero real return so there are no risk-free profits.…
We study the concept of financial bubble in a market model endowed with a set of probability measures, typically mutually singular to each other. In this setting we introduce the notions of robust bubble and robust fundamental value in a…
We consider the randomness of market trade as the origin of price and return stochasticity. We look at time series of trade values and volumes as random variables during the averaging interval {\Delta} and describe the dependences of…
Classical mean-variance portfolio theory tells us how to construct a portfolio of assets which has the greatest expected return for a given level of return volatility. Utility theory then allows an investor to choose the point along this…
Analytical, free of time consuming Monte Carlo simulations, framework for credit portfolio systematic risk metrics calculations is presented. Techniques are described that allow calculation of portfolio-level systematic risk measures…
The conventional wisdom of mean-variance (MV) portfolio theory asserts that the nature of the relationship between risk and diversification is a decreasing asymptotic function, with the asymptote approximating the level of portfolio…
Financial global crisis has devastating impacts to economies since early XX century and continues to impose increasing collateral damages for governments, enterprises, and society in general. Up to now, all efforts to obtain efficient…
We analyze the performance of RiskMetrics, a widely used methodology for measuring market risk. Based on the assumption of normally distributed returns, the RiskMetrics model completely ignores the presence of fat tails in the distribution…
Proponents of behavioral finance have identified several "puzzles" in the market that are inconsistent with rational finance theory. One such puzzle is the "excess volatility puzzle". Changes in equity prices are too large given changes in…
We introduce the concept of partial law invariance, generalizing the concepts of law invariance and probabilistic sophistication widely used in decision theory, as well as statistical and financial applications. This new concept is…
This paper discusses a novel explanation for asymmetric volatility based on the anchoring behavioral pattern. Anchoring as a heuristic bias causes investors focusing on recent price changes and price levels, which two lead to a belief in…