Related papers: Hedging Extreme Co-Movements
Cryptocurrency markets exhibit pronounced momentum effects and regime-dependent volatility, presenting both opportunities and challenges for systematic trading strategies. We propose AdaptiveTrend, a multi-component algorithmic trading…
We consider a portfolio with call option and the corresponding underlying asset under the standard assumption that stock-market price represents a random variable with lognormal distribution. Minimizing the variance (hedging risk) of the…
This book chapter illustrates how to apply extreme value statistics to financial time series data. Such data often exhibits strong serial dependence, which complicates assessment of tail risks. We discuss the two main approches to tail risk…
Generalized autoregressive conditionally heteroskedastic (GARCH) processes are widely used for modelling features commonly found in observed financial returns. The extremal properties of these processes are of considerable interest for…
The masses of data now available have opened up the prospect of discovering weak signals using machine-learning algorithms, with a view to predictive or interpretation tasks. As this survey of recent results attempts to show, bringing…
We consider strictly stationary heavy tailed time series whose finite-dimensional exponent measures are concentrated on axes, and hence their extremal properties cannot be tackled using classical multivariate regular variation that is…
We investigate the optimal strategy over a finite time horizon for a portfolio of stock and bond and a derivative in an multiplicative Markovian market model with transaction costs (friction). The optimization problem is solved by a…
We re-visit tail the index regressions framework. For linear specifications, we find that the usual full rank condition can fail because conditioning on extreme outcomes causes regressors to degenerate to constants. Taking this into…
We describe the pricing and hedging of financial options without the use of probability using rough paths. By encoding the volatility of assets in an enhancement of the price trajectory, we give a pathwise presentation of the replication of…
Modeling heterogeneity on heavy-tailed distributions under a regression framework is challenging, and classical statistical methodologies usually place conditions on the distribution models to facilitate the learning procedure. However,…
Since the inception of Bitcoin in 2008, cryptocurrencies have played an increasing role in the world of e-commerce, but the recent turbulence in the cryptocurrency market in 2018 has raised some concerns about their stability and associated…
This paper is concerned with the study of insurance related derivatives on financial markets that are based on non-tradable underlyings, but are correlated with tradable assets. We calculate exponential utility-based indifference prices,…
We introduce a new actuarial tail-shape index, the $\theta$-index, based on a probability equal level relationship between Value at Risk and Expected Shortfall. The index is defined at each tail probability level as the parameter value for…
We price and replicate a variety of claims written on the log price $X$ and quadratic variation $[X]$ of a risky asset, modeled as a positive semimartingale, subject to stochastic volatility and jumps. The pricing and hedging formulas do…
We propose a new measure related with tail dependence in terms of correlation: quantile correlation coefficient of random variables X, Y. The quantile correlation is defined by the geometric mean of two quantile regression slopes of X on Y…
The paper investigates quadratic hedging in a semimartingale market that does not necessarily contain a risk-free asset. An equivalence result for hedging with and without numeraire change is established. This permits direct computation of…
We study robust notions of good-deal hedging and valuation under combined uncertainty about the drifts and volatilities of asset prices. Good-deal bounds are determined by a subset of risk-neutral pricing measures such that not only…
We review recent progress in modeling credit risk for correlated assets. We start from the Merton model which default events and losses are derived from the asset values at maturity. To estimate the time development of the asset values, the…
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 the tail dependence should always be taken into account as a proxy for systematic risk of loss for investments. We provide the clear statistical evidence of that the structure of investment portfolios on a regulated…