Proposes a robust portfolio method for large asset universes.
problem Outliers in return data affect traditional portfolio optimizations.
method Robust PCA, shrinkage estimation, and adaptive portfolio weights.
result Superior portfolio performance in numerical and empirical tests.
Study minimizes market inefficiency in systemic economies.
problem Minimizing deviations of market prices from fundamental values.
method Characterized market inefficiency and developed a matrix of holdings to minimize it.
result Portfolio holdings should deviate more from diversification if banks have similar systemic significance.
Model predicts asset prices from initial shocks using neural networks.
problem Missing data on actual asset liquidations limits model calibration.
method Dual neural network structure, first stage maps shocks to liquidations, second stage uses liquidations to predict prices.
result Model accurately predicts equilibrium prices from initial shocks without liquidation data.
Network models assume unrealistic idiosyncratic risk, which can be mitigated by allowing for correlated shocks.
problem Network models assume idiosyncratic risk, which can be unrealistic and lead to incorrect predictions.
method Proposed a production-based asset pricing model to account for substitutability between trade partners and correlation in supply and demand shocks.
result Assets positively exposed to average propagation of upstream and downstream shocks earn lower average risk premia.
We explore a model of the interaction between banks and outside investors in which the ability of banks to issue inside money (short-term liabilities believed to be convertible into currency at par) can generate a collapse in asset prices and widespread bank insolvency. The banks and investors share a common belief abo…
Regulator allocates buffers to prevent financial contagion in networks with common assets.
problem Containment of default contagion in financial networks with common asset exposures.
method Allocates nonnegative buffer vectors under linear budget constraints to maximize default or insolvency resilience margins or minimize worst-case systemic losses.
result Exact synthesis results for buffer allocation under ℓ∞ and ℓ1 uncertainty sets, showing significant gains over uniform and exposure-proportional allocations. We provide a general probabilistic framework within which we establish scaling limits for a class of continuous-time stochastic volatility models with self-exciting jump dynamics. In the scaling limit, the joint dynamics of asset returns and volatility is driven by independent Gaussian white noises and two independent …
The study assesses how financial networks resist simultaneous price shocks and calculates the worst-case loss.
problem Resilience of financial networks to simultaneous price fluctuations and default contagion.
method Introduced a concept of default resilience margin, ε*, and computed worst-case systemic loss through linear programming.
result Threshold value ε* determines the maximum amplitude of asset price fluctuations the network can tolerate.
This research proposes methods to model and assess liability liquidity risk in asset management.
problem Lack of standardized models for liability liquidity risk in asset management.
method Statistical models, zero-inflated models, aggregate and individual-based approaches, and factor models.
result Developed mathematical and statistical approaches to estimate and assess redemption shocks.
Study extends Gai-Kapadia framework to assess systemic risk in global equity markets.
problem Systemic risk and default cascades in global equity markets.
method Network analysis, threshold filtering, Monte Carlo simulations, tail risk assessment.
result System exhibits strong global resilience with negligible probability of large-scale failure.
This paper proposes a new method for financial portfolio optimization based on reducing simultaneous asset shocks across a collection of assets. This may be understood as an alternative approach to risk reduction in a portfolio based on a new mathematical quantity. First, we apply recently introduced semi-metrics betwe…
New model analyzes dynamic correlations in stock returns.
problem Analyzing time-varying correlations in high-dimensional data.
method Dynamic factor correlation model with novel parametrization.
result Model accurately captures heterogeneous heavy-tailed distributions and dependent shocks.
New method identifies uncertainty shocks in financial markets using revised VIX.
problem Traditional VIX fails to capture non-Gaussian, heavy-tailed asset returns.
method Fit a double-subordinated Normal Inverse Gaussian Levy process to S&P 500 option prices to construct a revised VIX.
result Revised VIX provides a more comprehensive measure of volatility reflecting extreme movements and heavy tails.
Modeling financial crises and cryptocurrency shocks using copulae clustering.
problem Detecting financial crises and shock events in stock and cryptocurrency markets.
method Copulae clustering based on probability distribution distances.
result Successfully detected all past crises and shock events in stock and cryptocurrency markets.
We consider a model of financial contagion in a bipartite network of assets and banks recently introduced in the literature, and we study the effect of power law distributions of degree and balance-sheet size on the stability of the system. Relative to the benchmark case of banks with homogeneous degrees and balance-sh…
In this paper, we develop a theory of market crashes resulting from a deleveraging shock. We consider two representative investors in a market holding different opinions about the public available information. The deleveraging shock forces the high confidence investors to liquidate their risky assets to pay back their …
Modeling financial contagion through bank networks, revealing solvency correlations.
problem Understanding how financial shocks propagate through interconnected banks.
method Simulated financial network of 100 banks, randomly generated with varying link probabilities, and shocks applied to 15 banks.
result Ranges of probability values and banks' solvency are positively correlated.
Cryptocurrency markets treat infrastructure failures and regulatory shocks differently, but the effect is not statistically significant.
problem Understanding how cryptocurrency markets differentiate between infrastructure failures and regulatory shocks.
method A multi-moment event study using GJR-GARCH-X model with matched dependence-robust inference.
result The differential impact of infrastructure failures and regulatory shocks on cryptocurrency markets is not statistically significant.
Proposes a Structural Matrix Autoregressive model for joint analysis of asset returns, realized volatility, and trading volume.
problem Joint analysis of asset returns, realized volatility, and trading volume
method Structural Matrix Autoregressive model
result Volatility is primary driver of trading activity, with informational shocks incorporated through price variability.
We develop a novel stress-test framework to monitor systemic risk in financial systems. The modular structure of the framework allows to accommodate for a variety of shock scenarios, methods to estimate interbank exposures and mechanisms of distress propagation. The main features are as follows. First, the framework al…
We propose a new framework for measuring connectedness among financial variables that arises due to heterogeneous frequency responses to shocks. To estimate connectedness in short-, medium-, and long-term financial cycles, we introduce a framework based on the spectral representation of variance decompositions. In an e…
Study examines financial contagion at community level, finding increased contagion density and widespread transmission.
problem Understanding and managing financial contagion in interconnected markets.
method High-frequency data, Louvain community detection, Vector Autoregression, Tracy-Widom random matrix theory.
result Contagion density increases over time, and there is no significant difference between intra- and inter-community contagion.
How, and to what extent, does an interconnected financial system endogenously amplify external shocks? This paper attempts to reconcile some apparently different views emerged after the 2008 crisis regarding the nature and the relevance of contagion in financial networks. We develop a common framework encompassing seve…
The DebtRank algorithm has been increasingly investigated as a method to estimate the impact of shocks in financial networks, as it overcomes the limitations of the traditional default-cascade approaches. Here we formulate a dynamical "microscopic" theory of instability for financial networks by iterating balance sheet…
Study shows different types of volatility and skewness changes affect stock prices.
problem Different types of volatility and skewness changes affect stock prices.
method Used intraday data for individual stocks to analyze cross-section of asset returns.
result Idiosyncratic transitory and persistent shocks to volatility and skewness are priced differently in stock returns.
We study an infinite-horizon optimal investment, consumption and insurance problem for an economic agent who consumes a perishable and a durable good. The agent trades in a risk-free asset, a risky asset, and a durable good whose price follows a correlated diffusion, while the stock of the durable good depreciates dete…
Study analyzes how COVID-19 impacts crypto and stock market volatility.
problem Impact of COVID-19 on cryptocurrency and stock market volatility.
method Two-stage multivariate EGARCH model with DCC approach, VaR and CFVaR.
result Significant spillover effects and conditional volatility surges after shocks.
We construct an utility-based dynamic asset pricing model for a limit order market. The price is nonlinear in volume and subject to market impact. We solve an optimal hedging problem under the market impact and derive the dynamics of the efficient price, that is, the asset price when a representative liquidity demander…
Develops a climate risk model for asset managers.
problem Climate-related risks affecting asset performance and productivity.
method Uses the Vasicek model with downward jumps to represent climate impacts on asset dynamics.
result Expected losses increase over time due to climate-related extreme events.
Researchers calculate the price of a perpetual put option in Lévy models.
problem Calculating the price of a perpetual American put option in Lévy models.
method Derive the explicit price using geometric spectrally negative Lévy processes and optimal threshold.
result The optimal exercise time is the first epoch when the asset price drops below an optimal threshold.
Improved ARMA-GARCH model for illiquid assets like cryptocurrencies.
problem Inadequate modeling of illiquid assets, especially cryptocurrencies, with traditional ARMA-GARCH models.
method Introducing liquidity-adjusted liquidity jump and diffusion metrics into ARMA-GARCH framework.
result The liquidity-adjusted model improves model fit and volatility sensitivity for cryptocurrencies.
We study the effect of liquidity freezes on an economic agent optimizing her utility of consumption in a perturbed Black-Scholes-Merton model. The single risky asset follows a geometric Brownian motion but is subject to liquidity shocks, during which no trading is possible and stock dynamics are modified. The liquidity…
This paper analyzes how banking risks spread through sentiment and policy shocks.
problem Systemic risk in the U.S. banking system during the 2023 crisis.
method Time-Varying Parameter Vector Autoregression (TVP-VAR) model with 30-day rolling windows.
result Risk spillovers were driven by perceived similarities in bank business models under interest rate pressure.
A simple banking network model is proposed which features multiple waves of bank defaults and is analytically solvable in the limiting case of an infinitely large homogeneous network. The model is a collection of nodes representing individual banks; associated with each node is a balance sheet consisting of assets and …
Examines how central bank policies affect stock markets and asset prices.
problem Understanding the impact of monetary policy on stock markets and asset prices.
method Used Taylor rule equations to analyze data from 1990 to 2020 for US and UK, testing with various econometric methods.
result Monetary policy can explain asset price volatility and output gap better than just inflation rate.
In the last years, increasing efforts have been put into the development of effective stress tests to quantify the resilience of financial institutions. Here we propose a stress test methodology for central counterparties based on a network characterization of clearing members, whose links correspond to direct credits …
This paper proposes an empirical test of financial contagion in European equity markets during the tumultuous period of 2008-2011. Our analysis shows that traditional GARCH and Gaussian stochastic-volatility models are unable to explain two key stylized features of global markets during presumptive contagion periods: s…
The occurrence of aftershocks following a major financial crash manifests the critical dynamical response of financial markets. Aftershocks put additional stress on markets, with conceivable dramatic consequences. Such a phenomenon has been shown to be common to most financial assets, both at high and low frequency. It…
Develops a method for reverse stress testing in multivariate scenarios.
problem Reconstructing a multivariate stress scenario from a single exogenous shock.
method Maximizing conditional density under three distributional assumptions.
result Simulated scenarios are economically coherent and reproduce risk-reward asymmetry.
Study examines how Trump tariffs and COVID-19 affected financial market efficiency.
problem Impact of geopolitical and systemic shocks on financial market efficiency.
method Multifractal detrended fluctuation analysis applied to financial asset returns.
result Trump tariffs had moderate but observable effects on market efficiency, while COVID-19 induced substantial changes.
Swapping debt contracts can mitigate risk in financial networks.
problem Mitigating risk in financial networks through debt swaps.
method Analysis of debt swapping operations in financial networks under various conditions.
result Positive debt swaps can exist in worst-case shock models to minimize losses.
This paper examines cryptocurrency integration with traditional markets, showing how network structure and turbulence influence cross-asset spillovers.
problem Understanding how cryptocurrencies integrate with traditional financial markets and the impact of market stress on cross-asset spillovers.
method Combining rolling correlation networks, community structure, market-specific and system-wide Turbulence Indices, and VAR-based connectedness analysis.
result Cross-asset integration is episodic, with network structure and turbulence playing a role in transmission during stress periods.
The aim of this paper is to introduce a synthetic ALM model that catches the main specificity of life insurance contracts. First, it keeps track of both market and book values to apply the regulatory profit sharing rule. Second, it introduces a determination of the crediting rate to policyholders that is close to the p…
Study finds significant premium for low-beta stocks in firm-level idiosyncratic return distributions.
problem Understanding the role of common idiosyncratic quantile factors in asset pricing.
method Quantile factor analysis to extract common idiosyncratic quantile factors with asymmetric pricing effects.
result Significant premium for innovations to the lower-tail factor: high-beta stocks outperform low-beta stocks by around 7-8% per year.
How do macro-financial shocks affect investor behavior and market dynamics? Recent evidence on experience effects suggests a long-lasting influence of personally experienced outcomes on investor beliefs and investment, but also significant differences across older and younger generations. We formalize experience-based …
Study shows climate change can cause a 'run on fossil fuels' affecting prices and production.
problem Impact of climate change expectations on fossil fuel markets and prices.
method Dynamic, general equilibrium model of climate-change-linked transition risk.
result Climate change expectations can lead to either increased or decreased fossil fuel prices, depending on economic responses.
The study reveals asymmetries in US financial shocks' international impacts.
problem Analyzing nonlinearities in international financial spillovers.
method Developed a flexible nonlinear multi-country model to capture asymmetries in responses to financial shocks.
result Adverse shocks trigger stronger declines in output, inflation, and stock markets than benign shocks.
Crypto markets show negative spillovers between chains, not positive co-movements.
problem Negative spillovers in crypto asset returns across different blockchains.
method On-chain data from multiple blockchains (Ethereum, Solana, Binance, Arbitrum, Avalanche) analyzed over 2022-2025.
result Surges on one chain often coincide with declines on others, especially during attention shocks.