The MRS-GARCH model outperforms single-regime GARCH models in crude oil volatility forecasting.
problem Forecasting crude oil market volatility accurately.
method Evaluation of single-regime GARCH models and two-regime MRS-GARCH model at different data frequencies and time horizons.
result The two-regime MRS-GARCH model provides more accurate volatility forecasts for daily data but not for weekly and monthly data.
The paper optimizes portfolios using a new GARCH model with regime switching and tempered stable innovations.
problem Mitigating left tail risk in multi-asset portfolios.
method Proposes a Markov regime-switching GARCH model with multivariate normal tempered stable innovation (MRS-MNTS-GARCH) for portfolio optimization.
result Optimal portfolios with tail risk measures outperform standard deviation-based portfolios and equally weighted portfolios in various performance metrics.
This paper proposes a multi-scale Markov-Switching GARCH model for EUR/USD volatility.
problem Non-stationary financial volatility requires models that capture changing market conditions across multiple timescales.
method Triple-timeframe Markov-Switching GARCH (MS-GARCH) framework with AR(1)-MS-GARCH models and TVTP for short horizons.
result The proposed model produces statistically distinct regimes and superior volatility forecasting performance.
Model predicts global financial market risks and asset allocation.
problem Predicting downside risk and market regime shifts.
method Dynamic regime switching model based on GARCH-DCC-Copula.
result Significantly improves risk and alpha-based asset allocation strategies.
The study compares MS-GARCH and SARV models for Bitcoin volatility forecasting.
problem Analyzing Bitcoin price volatility using Markov Switching-GARCH and SARV models.
method Examined Markov Switching-GARCH and SARV models, comparing their forecasting performance.
result SARV models outperform MS-GARCH models in Bitcoin volatility forecasting.
Building on the work of Schweizer (1995) and Cern and Kallseny (2007), we present discrete time formulas minimizing the mean square hedging error for multidimensional assets. In particular, we give explicit formulas when a regime-switching random walk or a GARCH-type process is utilized to model the returns. Monte Carl…
New volatility model for option pricing with time-varying risk premium.
problem Volatility risk premium is time-varying and not well captured by existing models.
method Combines Markov switching with Realized GARCH framework to derive a state-dependent pricing kernel.
result The model reduces option pricing errors by 15% or more compared to competing models.
Unified model explains volatility memory in stocks and forex.
problem Understanding the components of volatility memory in financial markets.
method Developed a three-dimensional decomposition of volatility memory into level, shape, and tempo.
result Unified model shows that volatility memory is state-dependent, with different gates prevailing in equities and forex.
Leveraged ETFs can outperform their targets in certain market conditions, contrary to the volatility drag hypothesis.
problem The long-term performance decay of leveraged ETFs due to volatility drag.
method Unified framework incorporating AR(1) and AR-GARCH models, continuous-time regime switching, and flexible rebalancing frequencies.
result Return dynamics, including return autocorrelation, volatility clustering, and regime persistence, determine LETF performance.
This paper resolves the test for Markov regime switching models' regime number.
problem Testing the number of regimes in Markov regime switching models.
method Derives the asymptotic distribution of the likelihood ratio test statistic.
result Establishes the asymptotic validity of the parametric bootstrap.
New algorithms improve sampling from complex distributions.
problem Sampling from complex probability distributions efficiently.
method Regime-switching Langevin dynamics and Monte Carlo algorithms.
result Convergence guarantees and iteration complexities provided.
Developed a new statistic to test binary regime switching models.
problem Testing the model assumption of binary regime switching extension of GBM.
method Proposed a new discriminating statistics and identified an admissible class of regime switching candidate models.
result Sampling distribution of the test statistics differs significantly between different regime switching models.
This paper optimizes trading VIX futures using a regime-switching model.
problem Optimizing VIX futures trading under mean reversion and regime switching.
method Regime-switching model, coupled system of variational inequalities, PSOR method with Crank-Nicolson scheme.
result Illustrates optimal boundaries for VIX futures trading strategies.
Optimal futures trading strategy in a changing market model.
problem Dynamic trading in a regime-switching market.
method Utility maximization approach with HJB equations reduced to linear ODEs.
result Optimal futures positions and portfolio value across market regimes.
Direct method solves complex option pricing in changing market conditions.
problem Pricing financial options with changing market conditions.
method Reduces complex optimal stopping problems to simpler ones, finding explicit value functions.
result Simpler and more direct solution for option pricing in regime-switching models.
Develops identifiability theory for multi-lag regime-switching models.
problem Ensuring interpretability of deep latent variable models with multi-lag dependencies.
method Formulates a general theoretical framework for multi-lag Regime-Switching Models (RSMs), proving identifiability of number of regimes and multi-lag transitions.
result Establishes identifiability conditions for multi-lag regime-switching models, including Markov Switching Models and Switching Dynamical Systems.
Regime switching volatility models provide a tractable method of modelling stochastic volatility. Currently the most popular method of regime switching calibration is the Hamilton filter. We propose using the Baum-Welch algorithm, an established technique from Engineering, to calibrate regime switching models instead. …
Study optimal portfolio selection in a complex market with jumps and regime shifts.
problem Optimal portfolio selection in a market with jumps and regime shifts.
method Modeling a market with Lévy processes and regime switching, using various securities to complete the market, solving the portfolio selection problem for power and logarithmic utilities.
result Conditions for asymptotic-arbitrage-free market and solutions for optimal portfolio selection.
Paper derives analytical formulas for NLD-CEV moments with regime switching.
problem Analytical tractability of NLD-CEV models under stochastic regimes.
method Hybrid system approach using Feynman-Kac formula for solving interconnected PDEs.
result Exact closed-form expressions for fractional-order conditional moments.
Study optimal liquidation with multiple regimes using BSDEs with singular terminal values.
problem Optimal liquidation with regime switching in dark pools.
method Introduced a system of BSDEs with jumps and singular terminal values.
result Existence and uniqueness results for the BSDE system are obtained.
The paper develops a new hybrid model for pricing variance swaps.
problem Pricing variance swaps in a model with stochastic volatility and interest rate.
method Hybrid model combining Heston's stochastic volatility and CIR stochastic interest rate with regime-switching.
result A semi-closed form pricing formula for variance swaps is derived.
A hybrid approach detects financial market regime switches using PCA and k-means.
problem Detecting regime switches in financial markets for trend forecasting.
method Dimensionality reduction with PCA and clustering with k-means.
result Trading strategies based on detected regimes show improved performance.
Optimal dividend strategy found for risk models with regime switching.
problem Optimal dividend strategy for spectrally negative Markov additive models with regime switching.
method Introduced an auxiliary problem and transformed the original problem into a local optimization problem.
result The refraction-reflection strategy with regime-modulated thresholds is optimal.
Model captures external influences through random parameters and regime switching.
problem Capturing external influences in asset dynamics with uncertainty and regime changes.
method Developed a stochastic model with random parameters and regime switching, mathematically consistent and interpretable.
result Demonstrated the model's versatility through local volatility models and characteristic functions.
Hybrid model improves synthetic equity data generation.
problem Generating realistic synthetic financial time series.
method Discretized excess growth rates into states with Poisson jumps, estimating parameters directly.
result Framework achieved high pass rates for distributional and volatility clustering tests.
Investigates optimal portfolio selection with regime-switching-induced stock price shocks.
problem Mean-variance portfolio selection with regime-switching and stock price jumps.
method Modeling regime-switching and stock price jumps, deriving optimal portfolio strategy and efficient frontier using ODEs.
result Added complexity due to regime-switching-induced stock price shocks, leading to nonlinear ODEs.
Study optimal portfolios in a non-Markovian regime-switching model with random time horizon.
problem Optimal portfolio selection in a market with non-Markovian regime-switching and random time horizon.
method Formulated as a constrained stochastic linear-quadratic optimal control problem, derived closed-form expressions for optimal portfolios and efficient frontier.
result Closed-form expressions for optimal portfolios and efficient frontier derived under non-Markovian regime-switching and random time horizon.
The study extends asset pricing models to include time-dependent volatility and age-dependent regime switching.
problem Asset pricing in a market with time-varying interest rates and volatilities.
method Extension of Markov-modulated models to semi-Markov processes with age-dependent and time-dependent volatility.
result Option pricing in the extended model is equivalent to solving an integral equation.
Study optimal stopping times under regime-switching models with constraints.
problem Optimal stopping times for discounted payoffs on a regime-switching geometric Brownian motion.
method Solve variational inequality to find value functions and optimal thresholds.
result Existence and expressions of optimal stopping times under specific conditions.
New algorithm learns switching dynamics from multiple neural signals.
problem Learning accurate switching dynamical system models from multimodal neural data.
method Unsupervised learning algorithm for multiscale switching dynamical system models.
result Switching multiscale dynamical system models outperform single-scale models in behavior decoding.
Study improves S&P 500 volatility forecasting through regime-switching methods.
problem Accurate prediction of S&P 500 volatility for risk management and investment.
method Regime-switching methods including soft Markov switching, spectral clustering, and coefficient-based clustering.
result Coefficient-based clustering algorithm outperformed other models during all time periods.
A new method for pricing European options in changing market conditions.
problem Lack of closed-form solutions for pricing European options in regime-switching models.
method Physics-informed residual learning (PIRL) for efficient option pricing.
result PIRL eliminates the need for retraining and offers near-instantaneous pricing.
Volatility forecasting and return prediction in high-frequency Chinese equity markets.
problem Improving statistical forecasting performance and economic strategy outcomes in equity markets.
method Developing a sequential two-stage framework combining realized volatility modeling and XGBoost return prediction.
result Regime-aware volatility forecasting outperforms baseline models.
An insurer optimizes investment and risk control with default contagion and regime-switching.
problem Maximizing expected utility of terminal wealth in a risky market with default events.
method Develops a truncation technique to analyze the recursive HJB system and proves the existence and uniqueness of solutions.
result Characterizes optimal trading strategy and risk control for the insurer.
Framework models multiscale dynamics with Bayesian learning for regime changes.
problem Analyzing complex interactions between fast and slow processes.
method Hierarchical state-space modeling with Sequential Monte Carlo.
result Bayesian approach accurately tracks state transitions and identifies switching dynamics.
Investigates JM for reducing downside risk in market regimes.
problem Mitigating downside risk during market downturns.
method Statistical jump model for identifying market regimes, optimizing penalty for state transitions.
result JM-guided strategies outperform traditional models in reducing risk and enhancing returns.
Model predicts risk-adjusted returns across various financial markets.
problem Stationary models fail in predicting risk-adjusted returns due to market regime changes.
method Asset-independent regime-switching model using hidden Markov models.
result Accurately detects bull, bear, and high volatility periods for improved risk-adjusted returns.
The article detects market regimes from covariance matrices using VLSTAR and clustering models.
problem Market regime switching is hard to detect due to time-varying correlation coefficients.
method The article applies VLSTAR and unsupervised hierarchical clustering on monthly realized covariance matrices.
result VLSTAR outperforms clustering in detecting market regimes.
Optimal credit and consumption strategies in a switching market with default contagion.
problem Optimal portfolio and consumption decisions in a credit market with default contagion.
method Cobb-Douglas utility, recursive ODE system, backward solution from all-default state.
result Existence and uniqueness of optimal feedback controls, verification theorem.
In this paper, we consider a discrete time economy where we assume that the short term interest rate follows a quadratic term structure of a regime switching asset process. The possible non-linear structure and the fact that the interest rate can have different economic or financial trends justify the interest of Regim…
Algorithm solves American options with regime-switching using multigrid and compact finite difference.
problem Pricing American put options with regime-switching.
method Multigrid iterative algorithm based on compact finite difference schemes and Hermite interpolation.
result The algorithm provides a fast and efficient tool for pricing American put options with regime-switching.
Model interest rates and energy futures with regime-switching dynamics.
problem Modeling interest rates and energy futures with regime-switching dynamics.
method HJM model with Markov-chain modulated forward rates, proving affine structure for term structure.
result Explicit solutions for forward curves in many cases.
The paper extends the Heston model to include regime switching volatility.
problem Real-world stock volatility is not constant.
method Integrates regime switching into a stochastic volatility model.
result Locally risk-minimizing option pricing is derived for the extended model.
New model identifies regimes in non-stationary data.
problem Identifying latent regimes in non-stationary systems with instantaneous effects.
method Identifiable Markov Switching Models with exponential family noise.
result Established identifiability of latent regimes and causal structures.
Compact scheme solves American put options with regime-switching using finite differences and Hermite interpolation.
problem Pricing American put options with regime-switching model.
method Logarithmic transformation, compact finite difference scheme, Hermite interpolation.
result The scheme provides an accurate and fast solution compared to other methods.
Study optimizes natural gas power plant valuation using Levy copulas and regime-switching models.
problem Optimizing the valuation and operation of natural gas-fired power plants under market fluctuations.
method Stochastic control problem, Levy regime-switching model, skewed Levy copulas, HJB equation, finite difference method.
result Numerical method provides optimal operating strategies and plant values based on market prices and conditions.
This paper compares hedging strategies for pegged FX markets using a RS model.
problem Hedging performance in pegged foreign exchange markets.
method Regime switching model, Fourier approach for calibration, exact and approximated delta hedging.
result Approximated RS delta hedge is a viable alternative to the exact RS delta hedge and significantly faster.
Modeling temperature dynamics for weather derivatives using a novel regime-switching model.
problem Basis risk in weather derivatives due to poor design and modelling of temperature.
method Novel time-varying mean-reversion Lévy regime-switching model.
result The proposed model accurately models deseasonalized temperature data.