Related papers: Beta-Dependent Gamma Feedback and Endogenous Volat…
For quantitative trading risk management purposes, we present a novel idea: the realized local volatility surface. Concisely, it stands for the conditional expected volatility when sudden market behaviors of the underlying occur. One is…
We develop an entropic framework to model the dynamics of stocks and European Options. Entropic inference is an inductive inference framework equipped with proper tools to handle situations where incomplete information is available. The…
Dynamic hedging of an European option under a general local volatility model with small linear transaction costs is studied. A continuous control version of Leland's strategy that asymptotically replicates the payoff is constructed. An…
In decision-dependent games, multiple players optimize their decisions under a data distribution that shifts with their joint actions, creating complex dynamics in applications like market pricing. A practical consequence of these dynamics…
The event-triggered control with intermittent output can reduce the communication burden between the controller and plant side over the network. It has been exploited for adaptive output feedback control of uncertain nonlinear systems in…
The author seeks to develop a model to alter the bid-offer spread, currently quoted by market makers, that varies with the market and trading conditions. The dynamic nature of financial markets and trading, as with the rest of social…
It is well documented from various empirical studies that the volatility process of an asset price dynamics is stochastic. This phenomenon called for a new approach to describing the random evolution of volatility through time with…
We discuss a bivariate beta distribution that can model arbitrary beta-distributed marginals with a positive correlation. The distribution is constructed from six independent gamma-distributed random variates. We show how the parameters of…
Model uncertainty is a type of inevitable financial risk. Mistakes on the choice of pricing model may cause great financial losses. In this paper we investigate financial markets with mean-volatility uncertainty. Models for stock markets…
This paper introduces a unified parametric modeling approach for time-varying market betas that can accommodate continuous-time diffusion and discrete-time series models based on a continuous-time series regression model to better capture…
Dynamic jumps in the price and volatility of an asset are modelled using a joint Hawkes process in conjunction with a bivariate jump diffusion. A state space representation is used to link observed returns, plus nonparametric measures of…
We define and study a rather complex market model, inspired from the Santa Fe artificial market and the Minority Game. Agents have different strategies among which they can choose, according to their relative profitability, with the…
The Hawkes model is suitable for describing self and mutually exciting random events. In addition, the exponential decay in the Hawkes process allows us to calculate the moment properties in the model. However, due to the complexity of the…
Understanding how market participants react to shocks like scheduled macroeconomic news is crucial for both traders and policymakers. We develop a calibrated data generation process DGP that embeds four stylized trader archetypes retail,…
We present an agent behavior based microscopic model that induces jumps, spikes and high volatility phases in the price process of a traded asset. We transfer dynamics of thermally activated jumps of an unexcited/ excited two state system…
The beta distribution serves as a canonical tool for modeling probabilities in statistics and machine learning. However, there is limited work on flexible and computationally convenient stochastic process extensions for modeling dependent…
A simple quantitative example of a reflexive feedback process and the resulting price dynamics after an exogenous price shock to a financial network is presented. Furthermore, an outline of a theory that connects financial reflexivity,…
The paper proposes a class of financial market models which are based on inhomogeneous telegraph processes and jump diffusions with alternating volatilities. It is assumed that the jumps occur when the tendencies and volatilities are…
We develop a tractable framework for valuing Asian options when trading the underlying generates market impact and execution costs. Starting from a discrete-time, quote-level model, we construct a reference midpoint suitable for Asian…
This paper highlights the role of risk neutral investors in generating endogenous bubbles in derivatives markets. We find that a market for derivatives, which has all the features of a perfect market except completeness and has some risk…