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.
Paper calculates perpetual American put option pricing with drawdown event in Lévy market.
In this paper, we analyse some equity-linked contracts that are related to drawdown and drawup events based on assets governed by a geometric spectrally negative Lévy process. Drawdown and drawup refer to the differences between the historical maximum and minimum of the asset price and its current value, respectively. …
In this paper we consider some insurance policies related to drawdown and drawup events of log-returns for an underlying asset modeled by a spectrally negative geometric Lévy process. We consider four contracts, three of which were introduced in Zhang et al. (2013) for a geometric Brownian motion. The first one is an i…
This paper studies the stochastic modeling of market drawdown events and the fair valuation of insurance contracts based on drawdowns. We model the asset drawdown process as the current relative distance from the historical maximum of the asset value. We first consider a vanilla insurance contract whereby the protectio…
Drawdowns measuring the decline in value from the historical running maxima over a given period of time, are considered as extremal events from the standpoint of risk management. To date, research on the topic has mainly focus on the side of severity by studying the first drawdown over certain pre-specified size. In th…
Paper calculates perpetual put option pricing with drawdown cap.
We investigate the distributions of epsilon-drawdowns and epsilon-drawups of the most liquid futures financial contracts of the world at time scales of 30 seconds. The epsilon-drawdowns (resp. epsilon- drawups) generalise the notion of runs of negative (resp. positive) returns so as to capture the risks to which invest…
Quant strategies lost during market selloff.
This paper develops a CVaR framework for managing tail risks using puts and trend-following strategies.
We perform an extended analysis of the distribution of drawdowns in the two leading exchange markets (US dollar against the Deutsmark and against the Yen), in the major world stock markets, in the U.S. and Japanese bond market and in the gold market, by introducing the concept of ``coarse-grained drawdowns,'' which all…
New method generates realistic financial price paths with drawdowns.
In this paper we consider the problem of minimising drawdown in a portfolio of financial assets. Here drawdown represents the relative opportunity cost of the single best missed trading opportunity over a specified time period. We formulate the problem (minimising average drawdown, maximum drawdown, or a weighted combi…
Paper adds a restart mechanism to a drawdown control policy for better trading performance.
A theory of exceptional extreme events, characterized by their abnormal sizes compared with the rest of the distribution, is presented. Such outliers, called "dragon-kings", have been reported in the distribution of financial drawdowns, city-size distributions (e.g., Paris in France and London in the UK), in material f…
This paper considers magnitude, asymptotics and duration of drawdowns for some Lévy processes. First, we revisit some existing results on the magnitude of drawdowns for spectrally negative Lévy processes using an approximation approach. For any spectrally negative Lévy process whose scale functions are well-behaved at …
Modeling maximum drawdown records in capital markets using PDMP.
We consider the classic Kelly gambling problem with general distribution of outcomes, and an additional risk constraint that limits the probability of a drawdown of wealth to a given undesirable level. We develop a bound on the drawdown probability; using this bound instead of the original risk constraint yields a conv…
Hour-Aware Adaptive Risk Management for Autonomous Memecoin Trading
A taxonomy of large financial crashes proposed in the literature locates the burst of speculative bubbles due to endogenous causes in the framework of extreme stock market crashes, defined as falls of market prices that are outlier with respect to the bulk of drawdown price movement distribution. This paper goes on dee…
This paper considers an insurance surplus process modeled by a spectrally negative Lévy process. Instead of the time of ruin in the traditional setting, we apply the time of drawdown as the risk indicator in this paper. We study the joint distribution of the time of drawdown, the running maximum at drawdown, the last m…
Control of drawdown, that is, the control of the drops in wealth over time from peaks to subsequent lows, is of great concern from a risk management perspective. With this motivation in mind, the focal point of this paper is to address the drawdown issue in a stock trading context. Although our analysis can be carried …
We study the risk criterion for investments based on the drawdown from the maximal value of the capital in the past. Depending on investor's risk attitude, thus his risk exposure, we find that the distribution of these drawdowns follows a general power law. In particular, if the risk exposure is Kelly-optimal, the expo…
A new portfolio optimization model minimizes maximum drawdown, offering faster and more robust solutions.
A drawdown constraint forces the current wealth to remain above a given function of its maximum to date. We consider the portfolio optimisation problem of maximising the long-term growth rate of the expected utility of wealth subject to a drawdown constraint, as in the original setup of Grossman and Zhou (1993). We wor…
Unified framework for drawdown risk computation under Markov models.
In this work we study drawdowns and drawups of general diffusion processes. The drawdown process is defined as the current drop of the process from its running maximum, while the drawup process is defined as the current increase over its running minimum. The drawdown and the drawup are the first hitting times of the dr…
This study shows ESG ratings reduce equity crash risk during market downturns.
We clarify the status of log-periodicity associated with speculative bubbles preceding financial crashes. In particular, we address Feigenbaum's [2001] criticism and show how it can be rebuked. Feigenbaum's main result is as follows: ``the hypothesis that the log-periodic component is present in the data cannot be reje…
Study optimizes portfolio to minimize relative drawdown duration, penalizing unfavorable performance states.
Investors with anxiety about drawdowns may use stop-loss and trailing stops as optimal selling strategies.
Maximum drawdown, the largest cumulative loss from peak to trough, is one of the most widely used indicators of risk in the fund management industry, but one of the least developed in the context of measures of risk. We formalize drawdown risk as Conditional Expected Drawdown (CED), which is the tail mean of maximum dr…
Trading strategies that were profitable in the past often degrade with time. Since unlucky streaks can also hit "healthy" strategies, how can one detect that something truly worrying is happening? It is intuitive that a drawdown that lasts too long or one that is too deep should lead to a downward revision of the assum…
Drawdown (resp. drawup) of a stochastic process, also referred as the reflected process at its supremum (resp. infimum), has wide applications in many areas including financial risk management, actuarial mathematics and statistics. In this paper, for general time-homogeneous Markov processes, we study the joint law of …
In this paper the fractional trading ansatz of money management is reconsidered with special attention to chance and risk parts in the goal function of the related optimization problem. By changing the goal function with due regards to other risk measures like current drawdowns, the optimal fraction solutions reflect t…
Study portfolio optimization with partial info and drawdown constraints using deep learning.
A modular cash-overlay rule for allocating between a fixed growth-defensive risky sleeve and interest-bearing cash.
The focal point of this paper is the issue of "drawdown" which arises in recursive betting scenarios and related applications in the stock market. Roughly speaking, drawdown is understood to mean drops in wealth over time from peaks to subsequent lows. Motivated by the fact that this issue is of paramount concern to co…
We study the class of Azéma-Yor processes defined from a general semimartingale with a continuous running maximum process. We show that they arise as unique strong solutions of the Bachelier stochastic differential equation which we prove is equivalent to the drawdown equation. Solutions of the latter have the drawdown…
We determine the optimal amount to invest in a Black-Scholes financial market for an individual who consumes at a rate equal to a constant proportion of her wealth and who wishes to minimize the expected time that her wealth spends in drawdown during her lifetime. Drawdown occurs when wealth is less than some fixed pro…
We consider the portfolio choice problem for a long-run investor in a general continuous semimartingale model. We suggest to use path-wise growth optimality as the decision criterion and encode preferences through restrictions on the class of admissible wealth processes. Specifically, the investor is only interested in…
The aim of this paper is to provide several examples of convex risk measures necessary for the application of the general framework for portfolio theory of Maier-Paape and Zhu, presented in Part I of this series (arXiv:1710.04579 [q-fin.PM]). As alternative to classical portfolio risk measures such as the standard devi…
Study optimal consumption with relaxed benchmarks and drawdown constraints.
The paper audits trading filters, finding a high save-to-miss ratio.
Optimal dividend payout strategies with drawdown constraint identified.
New f-Betas for portfolio optimization using f-divergence risk measures.
The question of optimal portfolio is addressed. The conventional Markowitz portfolio optimisation is discussed and the shortcomings due to non-Gaussian security returns are outlined. A method is proposed to minimise the likelihood of extreme non-Gaussian drawdowns of the portfolio value. The theory is called Leptokurti…
This paper optimizes dividend payout rates with a drawdown constraint in a stochastic model.
Given a finite honest time, we first show that the associated Azéma optional supermartingale can be expressed as the drawdown and the relative drawdown of some local optional supermartingales with continuous running supremum. The relative drawdown representation then allows us to provide a characterisation of finite ho…