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We design a system for risk-analyzing and pricing portfolios of non-performing consumer credit loans. The rapid development of credit lending business for consumers heightens the need for trading portfolios formed by overdue loans as a…
In this study, MLP models with dynamic structure are applied to factor models for asset pricing tasks. Concretely, the MLP pyramid model structure was employed on firm-characteristic-sorted portfolio factors for modelling the large-capital…
This paper studies arbitrage pricing theory in financial markets with implicit transaction costs. We extend the existing theory to include the more realistic possibility that the price at which the investors trade is dependent on the traded…
We demonstrate the application of an algorithmic trading strategy based upon the recently developed dynamic mode decomposition (DMD) on portfolios of financial data. The method is capable of characterizing complex dynamical systems, in this…
The capital asset pricing model (CAPM) is readily used to capture a linear relationship between the daily returns of an asset and a market index. We extend this model to an intraday high-frequency setting by proposing a functional CAPM…
Financial institutions and insurance companies that analyze the evolution and sources of profits and losses often look at risk factors only at discrete reporting dates, ignoring the detailed paths. Continuous-time decompositions avoid this…
Finding Bertram's optimal trading strategy for a pair of cointegrated assets following the Ornstein--Uhlenbeck price difference process can be formulated as an unconstrained convex optimization problem for maximization of expected profit…
This paper addresses the challenge of model uncertainty in quantitative finance, where decisions in portfolio allocation, derivative pricing, and risk management rely on estimating stochastic models from limited data. In practice, the…
The current research on credit risk is primarily focused on modeling default probabilities. Recovery rates are often treated as an afterthought; they are modeled independently, in many cases they are even assumed constant. This is despite…
It is a common misconception that in order to make consistent profits as a trader, one needs to posses some extra information leading to an asset value estimation more accurate than that reflected by the current market price. While the idea…
Cryptocurrency trading represents a nascent field of research, with growing adoption in industry. Aided by its decentralised nature, many metrics describing cryptocurrencies are accessible with a simple Google search and update frequently,…
Stylized facts can be regarded as constraints for any modeling attempt of price dynamics on a financial market, in that an empirically reasonable model has to reproduce these stylized facts at least qualitatively. The dynamics of market…
Foundation models have transformed domains from language to genomics by learning general-purpose representations from large-scale, heterogeneous data. We introduce TradeFM, a 524M-parameter generative Transformer that brings this paradigm…
Deep neural network architectures are considered to be robust to random perturbations. Nevertheless, it was shown that they could be severely vulnerable to slight but carefully crafted perturbations of the input, termed as adversarial…
Financial risk prediction plays a crucial role in the financial sector. Machine learning methods have been widely applied for automatically detecting potential risks and thus saving the cost of labor. However, the development in this field…
We discuss the foundations of factor or regression models in the light of the self-consistency condition that the market portfolio (and more generally the risk factors) is (are) constituted of the assets whose returns it is (they are)…
Consider an insurance company exposed to a stochastic economic environment that contains two kinds of risk. The first kind is the insurance risk caused by traditional insurance claims, and the second kind is the financial risk resulting…
Factor models characterize the joint behavior of large sets of financial assets through a smaller number of underlying drivers. We develop a network-based framework in which factors emerge naturally from the structure of interactions among…
I demonstrate that with the market return determined by the equilibrium returns of the CAPM, expected returns of an asset are affected by the risks of all assets jointly. Another implication is that the range of feasible market returns will…
We develop theory and applications of forward characteristic processes in discrete time following a seminal paper of Jan Kallsen and Paul Kr\"uhner. Particular emphasis is placed on the dynamics of volatility surfaces which can be easily…