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A characteristic feature of complex systems in general is a tight coupling between their constituent parts. In complex socio-economic systems this kind of behavior leads to self-organization, which may be both desirable (e.g. social…
A dynamical model is introduced for the formation of a bullish or bearish trends driving an asset price in a given market. Initially, each agent decides to buy or sell according to its personal opinion, which results from the combination of…
Distributions of assets returns exhibit a slight skewness. In this note we show that our model of endogenous price formation \cite{Reimann2006} creates an asymmetric return distribution if the price dynamics are a process in which…
We develop a novel observation-driven model for high-frequency prices. We account for irregularly spaced observations, simultaneous transactions, discreteness of prices, and market microstructure noise. The relation between trade durations…
A simple Hawkes model have been developed for the price tick structure dynamics incorporating market microstructure noise and trade clustering. In this paper, the model is extended with random mark to deal with more realistic price tick…
We study hedging and pricing of unattainable contingent claims in a non-Markovian regime-switching financial model. Our financial market consists of a bank account and a risky asset whose dynamics are driven by a Brownian motion and a…
Using a stochastic nonlinear phase oscillator model, we study the effect of event-triggered feedback on the statistics of interevent intervals. Events are associated with the entering of a new cycle. The feedback is modeled by an…
This paper reviews some of the phenomenological models which have been introduced to incorporate the scaling properties of financial data. It also illustrates a microscopic model, based on heterogeneous interacting agents, which provides a…
Oft-cited causes of mini-flash crashes include human errors, endogenous feedback loops, the nature of modern liquidity provision, fundamental value shocks, and market fragmentation. We develop a mathematical model which captures aspects of…
We propose a novel framework for modeling time-varying persistence in economic time series, allowing for smoothly evolving heterogeneity in shock dynamics. We leverage localized regression techniques to flexibly identify changes in…
A growing part of the behavioral finance literature has addressed some of the stylized facts of financial time series as macroscopic patterns emerging from herding interactions among groups of agents with heterogeneous trading strategies…
In stochastic control problems delicate issues arise when the controlled system can jump due to both exogenous shocks and endogenous controls. Here one has to specify what the controller knows when about the exogenous shocks and how and…
We propose a deep hedging framework for index option portfolios, grounded in a realistic market simulator that captures the joint dynamics of S&P 500 returns and the full implied volatility surface. Our approach integrates surface-informed…
This paper addresses the design of robust dynamic output feedback control for highly uncertain systems in which the unknown disturbance might be excited by the derivative of the control input. This context appears in many industrial…
As soon as one accepts to abandon the zero-risk paradigm of Black-Scholes, very interesting issues concerning risk control arise because different definitions of the risk become unequivalent. Optimal hedges then depend on the quantity one…
We demonstrate that machine learning methods provide a powerful framework for modelling conditional asymmetric risk. Using a large cross-section of US stocks and a comprehensive set of firm characteristics, we show that allowing for…
This paper studies the optimal investment problem with random endowment in an inventory-based price impact model with competitive market makers. Our goal is to analyze how price impact affects optimal policies, as well as both pricing rules…
We present a dynamic hedging scheme for S&P 500 options, where rebalancing decisions are enhanced by integrating information about the implied volatility surface dynamics. The optimal hedging strategy is obtained through a deep policy…
Financial markets alternate between tranquil periods and episodes of stress, and return dynamics can change substantially across these regimes. We study regime-dependent dynamics in developed and developing equity indices using a…
The purpose of this work is to explore the role that arbitrage opportunities play in pricing financial derivatives. We use a non-equilibrium model to set up a stochastic portfolio, and for the random arbitrage return, we choose a stationary…