This paper optimizes international portfolios considering currency overlay costs and constraints.
problem Limited risk diversification in multi-currency portfolios due to currency concentration.
method Proposes a model integrating currency overlay and asset allocation optimization, accounting for costs and constraints.
result Inclusion of costs significantly alters optimal portfolio decisions and risk-return trade-offs.
In the forthcoming ISDA Standard Credit Support Annex (SCSA), the trades denominated in non-G5 currencies as well as those include multiple currencies are expected to be allocated to the USD silo, where the contracts are collateralized by USD cash, or a different currency with an appropriate interest rate overlay to ac…
Paper optimizes international portfolios with new copula-based scenario generation.
problem Optimizing international portfolios with realistic uncertainty models.
method Two-stage stochastic model, regular-vine copula for scenario generation, including transaction costs.
result Proposed method yields better risk-return portfolios than standard approaches.
Overlays were introduced by R. H. Fox [6] as a subclass of covering maps. We offer a different view of overlays: it resembles the definition of paracompact spaces via star refinements of open covers. One introduces covering structures for covering maps and p:X→Y is an overlay if it has a covering structure that ha…
A modular cash-overlay rule for allocating between a fixed growth-defensive risky sleeve and interest-bearing cash.
problem Drawdown control
method Continuous cash-overlay filters
result Earnings an 18.83% CAGR versus 16.62% for 100% R
Overlay framework simplifies exotic derivative pricing.
problem Inconsistent pricing models for exotics.
method Combines path reweighting and conic optimisation.
result Practically model-independent price bands for exotics.
Optimal tontine strategy maximizes withdrawals while minimizing shortfall.
problem Maximizing withdrawals from a tontine account with withdrawal constraints.
method Dynamic programming and Fourier methods to solve PIDE, tested with historical data.
result Tontine overlay strategy outperforms constant withdrawal strategies.
Paper proposes tensor-based method for semiconductor manufacturing process control.
problem Challenges of traditional process control methods in high-dimensional image-based overlay errors.
method Builds a high-dimensional process model, proposes tensor-on-vector regression algorithms, designs EWMA controller for tensor data.
result The method reduces overlay errors using limited control recipes and is superior especially when disturbances are not stable.
Climate-Dyna learns residual climate HVA for XVAs using model-based RL.
problem Tackles residual climate HVA in XVAs not inferred from stand-alone stress loss.
method Combines residual climate HVA with model-based reinforcement learning.
result Reduces climate charge from 1.517 to 0.831 in EU ETS study.
Model shows multiple currencies can coexist in large systems.
problem Competition between currencies leads to fractionalized states.
method Simplified model of currency competition with transaction costs.
result Large systems maintain two distinct currency communities.
This paper optimizes multi-currency AMMs to reduce forex trading costs.
problem Lack of direct liquid markets for currency pairs.
method Constant-mean AMM architecture, hierarchical agglomerative clustering algorithm.
result Optimized multi-currency pools reduce trading costs by ~13%.
By analyzing the foreign exchange market data of various currencies, we derive a hierarchical taxonomy of currencies constructing minimal-spanning trees. Clustered structure of the currencies and the key currency in each cluster are found. The clusters match nicely with the geographical regions of corresponding countri…
Paper examines pricing and hedging for cross-currency swaps referencing backward-looking rates.
problem Pricing and hedging cross-currency swaps with backward-looking rates.
method Uses interest rate and currency futures for hedging, analyzes arbitrage-free multi-curve setting.
result Explicit pricing and hedging results for CCBS with backward-looking rates.
Bitcoins have emerged as a possible competitor to usual currencies, but other crypto-currencies have likewise appeared as competitors to the Bitcoin currency. The expanding market of crypto-currencies now involves capital equivalent to 1010 US Dollars, providing academia with an unusual opportunity to study the em…
Abstract framework for cross-currency interest rate contracts.
problem Handling cross-currency markets with collateral and incompleteness.
method Developed a general HJM framework for abstract market indices.
result Enabled simultaneous description of multiple currency interest rate products.
Brazil proposes a new BRICS trade currency to dominate international trade.
problem Dominance of BRICS currency in international trade.
method Mathematical model of influence battle between three currencies, using trade flows and weights in global trade.
result By 2012, about 58% of countries preferred trading with the BRICS currency.
Study tests if deep hedging differs from delta hedging in a GARCH market model.
problem Whether deep hedging includes speculative components in a GARCH market.
method Tested in a GARCH-based market model, comparing deep hedging and delta hedging.
result The difference between deep hedging and delta hedging is speculative if risk measure does not prioritize adverse outcomes.
Optimizes retirement income with MBGs and neural networks for longevity risk.
problem Maximizing lifetime withdrawals while managing longevity risk.
method Neural-network optimization under stochastic mortality.
result International diversification and longevity pooling improve retirement outcomes.
A RL framework for hedging equity index options with realistic costs.
problem Dynamic hedging of equity index option exposures under transaction costs.
method Reinforcement Learning (RL) with a leak-free environment, cost-aware reward function, and stochastic actor-critic agent.
result The RL policy improves risk-adjusted performance compared to no-hedge, momentum, and volatility-targeting baselines.
Study examines risk of digital currencies using GARCH and Filtered Historical Simulation.
problem Risk management of digital currencies like Bitcoin, Ethereum, Litecoin, and Ripple.
method GARCH modelling followed by Filtered Historical Simulation.
result Digital currencies are subject to higher risk, requiring higher buffer and risk capital.
The paper examines dynamic reserving for multiple currencies under coherent risk measures.
problem Dynamic reserving for risk in multiple currencies under a general coherent risk measure.
method Shows time-consistency of reserving portfolios in multiple currencies when a generalized m-stability condition holds, equivalent to dynamic trading across baskets of currencies with proportional transaction costs.
result A version of the Fundamental Theorem of Asset Pricing holds in this context, proving time-consistency of reserving portfolios.
World currency network constitutes one of the most complex structures that is associated with the contemporary civilization. On a way towards quantifying its characteristics we study the cross correlations in changes of the daily foreign exchange rates within the basket of 60 currencies in the period December 1998 -- M…
We analyze structure of the world foreign currency exchange (FX) market viewed as a network of interacting currencies. We analyze daily time series of FX data for a set of 63 currencies, including gold, silver and platinum. We group together all the exchange rates with a common base currency and study each group separa…
Develops a new model for cross-currency derivatives pricing.
problem Pricing cross-currency derivatives in a complex market model.
method Introduces a random field LIBOR market model to handle uncertainty in forward LIBOR rates.
result Derives exact and approximate pricing formulas for various derivatives.
A large set of daily FOREX time series is analyzed. The corresponding correlation matrices (CM) are constructed for USD, EUR and PLZ used as the base currencies. The triangle rule is interpreted as constraints reducing the number of independent returns. The CM spectrum is computed and compared with the cases of shuffle…
Study on currency option valuation in crisis markets.
problem Valuation of currency options in financial crisis markets.
method Modified Black-Scholes model with augmented stochastic volatility.
result Closed-form solution for European call and put options.
AI predicts currency strength based on economic fundamentals, outperforming traditional methods.
problem Exchange rate disconnect puzzle documented by Meese and Rogoff (1983).
method Generative AI (ChatGPT and DeepSeek) forecasts currency returns using economic data.
result Simple trading strategy based on AI fundamentals outperforms traditional currency factors.
The paper models currency substitution and money demand in CEE countries, finding interest rate spreads influence money demand.
problem Understanding currency substitution and money demand in CEE countries.
method Developed a microeconomic model to differentiate currency substitution from money demand sensitivity to exchange rate variations.
result Money demand is influenced by the interest rate spread between CEE countries and the euro area, not just currency substitution.
New digital currency aims for equal wealth distribution.
problem Inequality in cryptocurrency wealth distribution.
method Egalitarian coin minting and joint minting across communities.
result Achieves global distributive justice in wealth distribution.
Study multi-currency markets with multiple interest rates and collateral.
problem Characterize absence of arbitrage in a multi-currency market.
method Generalize results from Bielecki and Rutkowski (2015) to a multi-currency framework, linking with Piterbarg (2012), Moreni and Pallavicini (2017), and Fujii et al. (2010b). Characterize absence of arbitrage without collateral, then study collateralization schemes under various conventions.
result Complete study of absence of arbitrage and pricing in multi-currency markets with multiple interest rates and collateral.
Hybrid method reveals true currency correlations.
problem Identify currency status in foreign exchange networks.
method Combines DCCC and network deconvolution to filter indirect effects.
result Reflects currency status changes and is more stable.
Study on collateral currency impact in differential swaps valuation.
problem Impact of collateral currency on differential swap valuation and risk management.
method Replication using futures, explicit pricing and hedging strategies.
result Choice of collateral currency can introduce additional risk exposures.
It is well known that traded foreign exchange forwards and cross currency swaps (CCS) cannot be priced applying overnight cash and carry arguments as they imply absence of funding advantage of one currency to the other. This paper proposes a heuristic present value concept for multi-currency pricing and hedging which a…
The study reveals the hierarchical structure of the international FOREX market using currency fluctuation distribution similarities.
problem Understanding the hierarchical structure of the international FOREX market.
method Using Jensen-Shannon divergence to quantify the similarity between normalized logarithmic return distributions of currencies.
result Clusters of currencies are consistent with the nature of underlying economies but diverge during crises.
In this paper an econophysics model for the currency exchange operations with commission is proposed. With this purpose some analogies and similarities of the processes that take place in the frame of the electrochemical system made from electrodes sunk into a solution of electrolytes and the process of the currency ex…
Study prices currency options using fractional delta hedging with transaction costs.
problem Pricing European currency options with transaction costs in fractional Black Scholes model.
method Applied delta hedging strategy to derive pricing formula and PDE.
result Fractional Black Scholes model with transaction costs is a satisfactory model.
Develops a new framework for currency option pricing with transaction costs.
problem Pricing currency options under transaction costs and fractional Brownian motion.
method Analytic formula derived using mean self-financing delta-hedging in a discrete time setting.
result Minimal price formula for currency options under transaction costs.
Gold and currency markets form a unique pair with specific interactions and dynamics. We focus on the efficiency ranking of gold markets with respect to the currency of purchase. By utilizing the Efficiency Index (EI) based on fractal dimension, approximate entropy and long-term memory on a wide portfolio of 142 gold p…
For the purpose of elucidating the correlation among currencies, we analyze daily and high-resolution data of foreign exchange rates. There is strong correlation for pairs of currencies of geographically near countries. We show that there is a time delay of order less than a minute between two currency markets having a…
We develop the first basic Operational Risk perspective on key risk management issues associated with the development of new forms of electronic currency in the real economy. In particular, we focus on understanding the development of new risks types and the evolution of current risk types as new components of financia…
Study shows variance gamma model outperforms Black-Scholes for USD-INR currency options.
problem Complex pricing of currency options with multi-assets.
method Examined USD-INR currency options, tested several models, compared performance.
result Variance gamma model outperforms Black-Scholes model in various volatility regimes.
A new approach for pricing FX options that uses a single model for all markets.
problem Consistent pricing of FX options across different markets.
method Intermediate currency approach, calibrating to domestic market volatility smile.
result Model automatically reproduces correct foreign market volatility smiles.
Automated market-making for CBDCs and stable coins on blockchain.
problem Creating fair exchange rates for digital assets on blockchain.
method Developed an innovative approach for generating fair exchange rates.
result Illustrated the approach's efficacy on G-10 currency exchange rates.
This paper investigates arbitrage chains involving four currencies and four foreign exchange trader-arbitrageurs. In contrast with the three-currency case, we find that arbitrage operations when four currencies are present may appear periodic in nature, and not involve smooth convergence to a "balanced" ensemble of exc…
Currency volatility shocks predict lower excess returns, and buying weak transmitters outperforms selling strong ones.
problem Predicting currency returns using volatility shocks.
method Constructed a dynamic, directed network of volatility connections using option-implied volatilities.
result Currencies that transmit more volatility shocks earn lower excess returns.
Study predicts crypto-currency price collapses using standard deviation.
problem Detecting price collapses in crypto-currencies.
method Phenomenological model and analysis of standard deviation.
result Standard deviation can predict crypto-currency price collapses.
We studied the topology of correlation networks among 34 major currencies using the concept of a minimal spanning tree and hierarchical tree for the full years of 2007-2008 when major economic turbulence occurred. We used the USD (US Dollar) and the TL (Turkish Lira) as numeraires in which the USD was the major currenc…
Study shows Wikipedia views correlate with digital currency market performance.
problem Lack of systematic investigation into online attention and crypto market dynamics.
method Quantified the interplay between Wikipedia attention and digital currency market performance using edit history and view history.
result A simple trading strategy informed by Wikipedia views outperformed classic strategies.