Related papers: Generalized Technical Analysis. Effects of transac…
This paper describes the dependence of market-based statistical moments of returns on statistical moments and correlations of the current and past trade values. We use Markowitz's definition of value weighted return of a portfolio as the…
A general framework is suggested to describe human decision making in a certain class of experiments performed in a trading laboratory. We are in particular interested in discerning between two different moods, or states of the investors,…
We propose a route for the evaluation of risk based on a transformation of the covariance matrix. The approach uses a `potential' or `objective' function. This allows us to rescale data from different assets (or sources) such that each data…
Current business cycle theory is an application of the general equilibrium theory. This paper presents the business cycle model without using general equilibrium framework. We treat agents risk assessments as their coordinates x on economic…
This paper addresses the challenges faced in large-volume trading, where executing substantial orders can result in significant market impact and slippage. To mitigate these effects, this study proposes a volatility-volume-based order…
We model systemic risk using a common factor that accounts for market-wide shocks and a tail dependence factor that accounts for linkages among extreme stock returns. Specifically, our theoretical model allows for firm-specific impacts of…
In the paper a problem of risk measures on a discrete-time market model with transaction costs is studied. Strategy effectiveness and shortfall risk is introduced. This paper is a generalization of quantile hedging presented in [4].
We study the problem of what causes prices to change. We define the mechanical impact of a trading order as the change in future prices in the absence of any future changes in decision making, and its it informational impact as the…
A deterministic trading strategy can be regarded as a signal processing element that uses external information and past prices as inputs and incorporates them into future prices. This paper uses a market maker based method of price…
A systematic study of the relations between fluctuations of the extensive multiparticle variables and integrals of the inclusive multipaticle densities is analysed. The generalized factorial moments are introduced and their physical meaning…
In order to properly manage risk, practitioners must understand the aggregate risks they are exposed to. Additionally, to properly price policies and calculate bonuses the relative riskiness of individual business units must be well…
Trading styles can be classified into either trend-following or mean-reverting. If the net trading style is trend-following the traded asset is more likely to move in the same direction it moved previously (the opposite is true if the net…
The paper concerns primal and dual representations as well as time consistency of set-valued dynamic risk measures. Set-valued risk measures appear naturally when markets with transaction costs are considered and capital requirements can be…
We propose a general interpretation for long-range correlation effects in the activity and volatility of financial markets. This interpretation is based on the fact that the choice between `active' and `inactive' strategies is subordinated…
The sensitivity to risk that most people (hence, financial operators) feel affects the dynamics of financial transactions. Here we present an approach to this problem based on a current generalization of Boltzmann-Gibbs statistical…
We generalize classical statistical mechanics to describe the kinematics and the dynamics of systems whose variables are constrained by a single quantum postulate (discreteness of the spectrum of values of at least one variable of the…
In financial markets, not only prices and returns can be considered as random variables, but also the waiting time between two transactions varies randomly. In the following, we analyse the statistical properties of General Electric stock…
The market impact (MI) of Volume Weighted Average Price (VWAP) orders is a convex function of a trading rate, but most empirical estimates of transaction cost are concave functions. How is this possible? We show that isochronic (constant…
We present a quantitative theory, based on crowd effects, for the market volatility in a Minority Game played by a mixed population. Below a critical concentration of generalized strategy players, we find that the volatility in the crowded…
We investigate how price variations of a stock are transformed into profits and losses (P&Ls) of a trend following strategy. In the frame of a Gaussian model, we derive the probability distribution of P&Ls and analyze its moments (mean,…