A locally-built, LLM-digested index of recent arXiv papers in quant finance, geometry/topology, and statistical ML — keyword search served straight from SQLite on this machine.
This paper offers a mathematical framework to manage inventory risk in FX cash markets.
In a market of deterministic cash flows, given as an additive, symmetric relation of exchangeability on the finite signed Borel measures on the non-negative real time axis, it is shown that the only arbitrage-free price functional that fulfills some additional mild requirements is the integral of the unit zero-coupon b…
We present a general derivation of the arbitrage-free pricing framework for multiple-currency collateralized products. We include the impact on option pricing of the policy adopted to fund in foreign currency, so that we are able to price contracts with cash flows and/or collateral accounts expressed in foreign currenc…
Model accurately calibrates FX market skew for exotic options.
Paper examines two methods for FX market volatility modeling.
A new approach for pricing FX options that uses a single model for all markets.
Method to decompose portfolio performance into FX, interest rate, carry, and residual market risks.
There is intense interest in understanding the stochastic and dynamical properties of the global Foreign Exchange (FX) market, whose daily transactions exceed one trillion US dollars. This is a formidable task since the FX market is characterized by a web of fluctuating exchange rates, with subtle inter-dependencies wh…
We develop an optimal currency hedging strategy for fund managers who own foreign assets to choose the hedge tenors that maximize their FX carry returns within a liquidity risk constraint. The strategy assumes that the offshore assets are fully hedged with FX forwards. The chosen liquidity risk metric is Cash Flow at R…
This paper offers a framework for FX dealers to decide between internalizing and externalizing their market making to balance risk control and costs.
A time series model for the FX dynamics is presented which takes into account structural peculiarities of the market, namely its heterogeneity and an information flow from long to short time horizons. The model emerges from an analogy between FX dynamics and hydrodynamic turbulence. The heterogeneity of the market is m…
We study the local volatility function in the Foreign Exchange market where both domestic and foreign interest rates are stochastic. This model is suitable to price long-dated FX derivatives. We derive the local volatility function and obtain several results that can be used for the calibration of this local volatility…
A market fix serves as a benchmark for foreign exchange (FX) execution, and is employed by many institutional investors to establish an exact reference at which execution takes place. The currently most popular FX fix is the World Market Reuters (WM/R) 4pm fix. Execution at the WM/R 4pm fix is a service offered by FX b…
We use techniques from network science to study correlations in the foreign exchange (FX) market over the period 1991--2008. We consider an FX market network in which each node represents an exchange rate and each weighted edge represents a time-dependent correlation between the rates. To provide insights into the clus…
Investigates optimal strategies for market makers using internal liquidity.
Develops a new model for multi-currency volatility using CBI-time-changed Lévy processes.
Paper proposes methods for pricing FX-linked Bermudan options using quantization.
Survival strategy for crypto firms in bear markets using BTC-to-sats payments rail.
We introduce a novel multi-factor Heston-based stochastic volatility model, which is able to reproduce consistently typical multi-dimensional FX vanilla markets, while retaining the (semi)-analytical tractability typical of affine models and relying on a reasonable number of parameters. A successful joint calibration t…
Study option pricing in sideways markets and target zones.
We introduce a tractable multi-currency model with stochastic volatility and correlated stochastic interest rates that takes into account the smile in the FX market and the evolution of yield curves. The pricing of vanilla options on FX rates can be performed effciently through the FFT methodology thanks to the affinit…
New technique identifies lead-lag relationships in FX market during pandemic.
We examine the Foreign Exchange (FX) spot price spreads with and without Last Look on the transaction. We assume that brokers are risk-neutral and they quote spreads so that losses to latency arbitrageurs (LAs) are recovered from other traders in the FX market. These losses are reduced if the broker can reject, ex-post…
Study optimizes insurance liability cash flows with regulatory capital requirements.
Simple method solves Quanto Skew problem.
The condition for stationary increments, not scaling, detemines long time pair autocorrelations. An incorrect assumption of stationary increments generates spurious stylized facts, fat tails and a Hurst exponent H_s=1/2, when the increments are nonstationary, as they are in FX markets. The nonstationarity arises from s…
We propose a top-down model for cash CLO. This model can consistently price cash CLO tranches both within the same deal and across different deals. Meaningful risk measures for cash CLO tranches can also be defined and computed. This method is self-consistent, easy to implement and computationally efficient. It has the…
TDA improves FX clustering quality over traditional methods.
A new framework for asset price dynamics is introduced in which the concept of noisy information about future cash flows is used to derive the price processes. In this framework an asset is defined by its cash-flow structure. Each cash flow is modelled by a random variable that can be expressed as a function of a colle…
The study uses AI to optimize trading in FX markets by considering size-dependent fees and risk-aversion.
Credit Default Swaps (CDS) on a reference entity may be traded in multiple currencies, in that protection upon default may be offered either in the domestic currency where the entity resides, or in a more liquid and global foreign currency. In this situation currency fluctuations clearly introduce a source of risk on C…
A dealer manages quotes and rejection rules to control slippage risk in FX markets.
This paper gives an arbitrage-free prediction for future prices of an arbitrary co-terminal set of options with a given maturity, based on the observed time series of these option prices. The statistical analysis of such a multi-dimensional time series of option prices corresponding to strikes (with large, e.g.…
This paper presents an overview of information-based asset pricing. In this approach, an asset is defined by its cash-flow structure. The market is assumed to have access to "partial" information about future cash flows. Each cash flow is determined by a collection of independent market factors called X-factors. The ma…
We propose and discuss some toy models of stock markets using the same operatorial approach adopted in quantum mechanics. Our models are suggested by the discrete nature of the number of shares and of the cash which are exchanged in a real market, and by the existence of conserved quantities, like the total number of s…
If financial markets displayed the informational efficiency postulated in the efficient markets hypothesis (EMH), arbitrage operations would be self-extinguishing. The present paper considers arbitrage sequences in foreign exchange (FX) markets, in which trading platforms and information are fragmented. In Kozyakin et …
Finance is a particularly challenging application area for deep learning models due to low noise-to-signal ratio, non-stationarity, and partial observability. Non-deliverable-forwards (NDF), a derivatives contract used in foreign exchange (FX) trading, presents additional difficulty in the form of long-term planning re…
Investigates optimal withdrawal strategies in VA contracts with tax and ratchet mechanisms.
Quantum theory is used to model secondary financial markets. Contrary to stochastic descriptions, the formalism emphasizes the importance of trading in determining the value of a security. All possible realizations of investors holding securities and cash is taken as the basis of the Hilbert space of market states. The…
In this note we investigate the consistency under inversion of jump diffusion processes in the Foreign Exchange (FX) market. In other terms, if the EUR/USD FX rate follows a given type of dynamics, under which conditions will USD/EUR follow the same type of dynamics? In order to give a numerical description of this pro…
We study the long memory of order flow for each of three liquid currency pairs on a large electronic trading platform in the foreign exchange (FX) spot market. Due to the extremely high levels of market activity on the platform, and in contrast to existing empirical studies of other markets, our data enables us to perf…
Elastic Cash adjusts money supply to stabilize interest rates.
This paper provides intuition on the relationship of accrual and mark-to-market valuation for cash and forward interest rate trades. Discounted cashflow valuation is compared to spread-based valuation for forward trades, which explains the trader's view on valuation. This is followed by Taylor series approximation for …
This study shows how monetary uncertainty affects stock market reactions to macroeconomic news.
We study contingent claims in a discrete-time market model where trading costs are given by convex functions and portfolios are constrained by convex sets. In addition to classical frictionless markets and markets with transaction costs or bid-ask spreads, our framework covers markets with nonlinear illiquidity effects…
Automated market-making for CBDCs and stable coins on blockchain.
Paper develops models to forecast private equity fund cash flows.
This paper measures and compares the tail risks of limit and market orders using Extreme Value Theory. The analysis examines realised tail outcomes using the Dealing 2000-2 electronic broking system based on completed transactions rather than the more common analysis of indicative quotes. In general, limit and market o…