Related papers: Single-Asset Adaptive Leveraged Volatility Control
In this paper, we employ the Heston stochastic volatility model to describe the stock's volatility and apply the model to derive and analyze the optimal trading strategies for dealers in a security market. We also extend our study to option…
Accurate forecasting of volatility and return quantiles is essential for evaluating financial tail risks such as value-at-risk and expected shortfall. This study proposes an extension of the traditional stochastic volatility model, termed…
This paper considers a class of stochastic control problems with implicitly defined objective functions, which are the sources of time-inconsistency. We study the closed-loop equilibrium solutions in a general controlled diffusion…
Volatility is a key measure of risk in financial analysis. The high volatility of one financial asset today could affect the volatility of another asset tomorrow. These lagged effects among volatilities - which we call volatility spillovers…
This paper introduces a unified approach for modeling high-frequency financial data that can accommodate both the continuous-time jump-diffusion and discrete-time realized GARCH model by embedding the discrete realized GARCH structure in…
This paper offers a new approach to modeling and forecasting of nonstationary time series with applications to volatility modeling for financial data. The approach is based on the assumption of local homogeneity: for every time point, there…
In a fixed time horizon, appropriately executing a large amount of a particular asset -- meaning a considerable portion of the volume traded within this frame -- is challenging. Especially for illiquid or even highly liquid but also highly…
This paper explores option portfolio optimization when the underlying returns are skew-elliptical t-distributed. We use the variance and value at risk (VaR) to measure portfolio risk. The novelty of our work is the departure from the…
In financial markets, accurately measuring the risk of future fluctuations in asset prices is of paramount importance. Studies such as Carr and Madan have shown that the expected value of the quadratic variation of log prices can be…
This study examines the performance of a volatility-based strategy using Chinese equity index ETF options. Initially successful, the strategy's effectiveness waned post-2018. By integrating GARCH models for volatility forecasting, the…
We find economically and statistically significant gains when using machine learning for portfolio allocation between the market index and risk-free asset. Optimal portfolio rules for time-varying expected returns and volatility are…
Volatility-based trading strategies have attracted a lot of attention in financial markets due to their ability to capture opportunities for profit from market dynamics. In this article, we propose a new volatility-based trading strategy…
This paper studies a variation of the continuous-time mean-variance portfolio selection where a tracking-error penalization is added to the mean-variance criterion. The tracking error term penalizes the distance between the allocation…
An actively managed portfolio almost never beats the market in the long term. Thus, many investors often resort to passively managed portfolios whose aim is to follow a certain financial index. The task of building such passive portfolios…
Index funds are substantially preferred by investors nowadays, and market sensitivities are instrumental in managing index funds. An index fund is a mutual fund aiming to track the returns of a predefined market index (e.g., the S&P 500). A…
We study the estimation of leverage effect and volatility of volatility by using high-frequency data with the presence of jumps. We first construct spot volatility estimator by using the empirical characteristic function of the…
Previous literature shows that prevalent risk measures such as Value at Risk or Expected Shortfall are ineffective to curb excessive risk-taking by a tail-risk-seeking trader with S-shaped utility function in the context of portfolio…
This paper examines how shocks to currency volatilities predict exchange rates. Using option-implied volatilities, we construct a dynamic, directed network of volatility connections. Currencies that transmit more volatility shocks, which…
The instability of historical risk factor correlations renders their use in estimating portfolio risk extremely questionable. In periods of market stress correlations of risk factors have a tendency to quickly go well beyond estimated…
Changes in market conditions present challenges for investors as they cause performance to deviate from the ranges predicted by long-term averages of means and covariances. The aim of conditional asset allocation strategies is to overcome…