Related papers: Elements for a Theory of Financial Risks
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…
We present a new, recursive approach to stochastic inflation which is self-consistent and solves multiple problems which plagued a certain number of previous studies, in particular in realistic contexts where the background spacetime is…
Searching for new effective risk factors on stock returns is an important research topic in asset pricing. Factor modeling is an active research topic in statistics and econometrics, with many new advances. However, these new methods have…
We consider stochastic thermodynamics as a theory of statistical inference for experimentally observed fluctuating time-series. To that end, we introduce a general framework for quantifying the knowledge about the dynamical state of the…
Pricing of high-dimensional options is a deep problem of the Theoretical Financial Mathematics. In this article we present a new class of L\'{e}vy driven models of stock markets. In our opinion, any market model should be based on a…
In economics, construction of perfect models in a way that would be comparable to the standards customary in physical sciences is generally not feasible. In particular, the observed value for an economic equilibrium may deviate…
We propose a simple statistical-physics-inspired model for the effect of intrinsic fluctuations on supply and demand in markets. The model consists of agents that trade in two types of goods of which the total number is separately…
We establish an explicit approximation formula for European put option prices within a general stochastic volatility model with time-dependent parameters. Our methodology is based on expansions of the mixing representation of the put option…
It is well known that conventional simulation algorithms are inefficient for the statistical description of macroscopic systems exactly at the critical point due to the divergence of the corresponding relaxation time (critical slowing…
The real options approach is now considered an effective alternative to the corporate DCF model for a feasibility study. The current paper offers a practical methodology employing binomial trees and real options techniques for evaluating…
Using frequency distributions of daily closing price time series of several financial market indexes, we investigate whether the bias away from an equiprobable sequence distribution found in the data, predicted by algorithmic information…
This work contains the mathematical exploration of a few prototypical games in which central concepts from statistics and probability theory naturally emerge. The first two kinds of games are termed Fisher and Bayesian games, which are…
The use of equilibrium models in economics springs from the desire for parsimonious models of economic phenomena that take human reasoning into account. This approach has been the cornerstone of modern economic theory. We explain why this…
Fluctuations in the statistical model of heavy ion collisions are studied. The role of statistics, relativity, constraints, decaying resonances and branching processes are investigated using this model. Also studied are thermodynamic…
Fluctuation theorems play a central role in nonequilibrium physics and stochastic thermodynamics. Here we derive an integral fluctuation theorem for the dissipated heat in systems governed by an underdamped Langevin dynamics. We show that…
In this note we consider the maximization of the expected terminal wealth for the setup of quadratic transaction costs. First, we provide a very simple probabilistic solution to the problem. Although the problem was largely studied, as far…
In a Markovian stochastic volatility model, we consider financial agents whose investment criteria are modelled by forward exponential performance processes. The problem of contingent claim indifference valuation is first addressed and a…
Prices of commodities or assets produce what is called time-series. Different kinds of financial time-series have been recorded and studied for decades. Nowadays, all transactions on a financial market are recorded, leading to a huge amount…
Since the Great Financial Crisis (GFC), the use of stress tests as a tool for assessing the resilience of financial institutions to adverse financial and economic developments has increased significantly. One key part in such exercises is…
In this paper we present a rather general phenomenological theory of tick-by-tick dynamics in financial markets. Many well-known aspects, such as the L\'evy scaling form, follow as particular cases of the theory. The theory fully takes into…