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.
Optimizes sparse mean-reverting portfolios for higher returns.
This paper considers the mean-reverting portfolio design problem arising from statistical arbitrage in the financial markets. We first propose a general problem formulation aimed at finding a portfolio of underlying component assets by optimizing a mean-reversion criterion characterizing the mean-reversion strength, ta…
Two new models improve option valuation for negative or mean reverting futures markets.
This paper considers the mean-reverting portfolio design problem arising from statistical arbitrage in the financial markets. The problem is formulated by optimizing a criterion characterizing the mean-reversion strength of the portfolio and taking into consideration the variance of the portfolio and an investment budg…
Modeling horse race betting odds with Ornstein-Uhlenbeck process.
The paper finds optimal levels for traders in mean-reverting markets.
The paper analyzes a five-factor capital market model and facilitates exact simulation.
Investors benefit from long horizons in a market with mean-reverting equity returns.
Mean-reverting assets are one of the holy grails of financial markets: if such assets existed, they would provide trivially profitable investment strategies for any investor able to trade them, thanks to the knowledge that such assets oscillate predictably around their long term mean. The modus operandi of cointegratio…
We study an optimal execution problem in the presence of market impact where the security price follows a geometric Ornstein-Uhlenbeck process, which implies the mean-reverting property, and show that the optimal strategy is a mixture of initial/terminal block liquidation and gradual intermediate liquidation. The mean-…
Trading styles affect long-run variance of asset prices, increasing under trend-following and decreasing under mean-reverting.
A new model for short rates using pure-jump processes.
Investors can achieve optimal risk-reward trade-offs with bonds and stocks under mean-reverting stock returns.
Using spectral decomposition techniques and singular perturbation theory, we develop a systematic method to approximate the prices of a variety of options in a fast mean-reverting stochastic volatility setting. Four examples are provided in order to demonstrate the versatility of our method. These include: European opt…
American Depositary Receipts (ADRs) are exchange-traded certificates that rep- resent shares of non-U.S. company securities. They are major financial instruments for investing in foreign companies. Focusing on Asian ADRs in the context of asyn- chronous markets, we present methodologies and results of empirical analysi…
We discuss stochastic modeling of volatility persistence and anti-correlations in electricity spot prices, and for this purpose we present two mean-reverting versions of the multifractal random walk (MRW). In the first model the anti-correlations are modeled in the same way as in an Ornstein-Uhlenbeck process, i.e. via…
Agent-based model simulates speculative electronic market with price bubbles.
Modeling informed trading with risk-averse market makers.
Deep reinforcement learning improves trading performance with predictable returns.
We provide further evidence that markets trend on the medium term (months) and mean-revert on the long term (several years). Our results bolster Black's intuition that prices tend to be off roughly by a factor of 2, and take years to equilibrate. The story behind these results fits well with the existence of two types …
Model predicts Bitcoin prices influenced by market attention.
We prove the global existence of an incomplete, continuous-time finite-agent Radner equilibrium in which exponential agents optimize their expected utility over both running consumption and terminal wealth. The market consists of a traded annuity, and, along with unspanned income, the market is incomplete. Set in a Bro…
Optimal control models for limit order trading often assume that the underlying asset price is a Brownian motion since they deal with relatively short time scales. The resulting optimal bid and ask limit order prices tend to track the underlying price as one might expect. This is indeed the case with the model of Avell…
Optimizes trading in markets with unpredictable price impacts.
The price of electricity is far more volatile than that of other commodities normally noted for extreme volatility. The possibility of extreme price movements increases the risk of trading in electricity markets. However, underlying the process of price returns is a strong mean-reverting mechanism. We study this featur…
We propose a heterogeneous agent market model (HAM) in continuous time. The market is populated by fundamental traders and chartists, who both use simple linear trading rules. Most of the related literature explores stability, price dynamics and profitability either within deterministic models or by simulation. Our nov…
In this paper, we analyze the diversity of term structure functions (e.g., yield curves, swap curves, credit curves) constructed in a process which complies with some admissible properties: arbitrage-freeness, ability to fit market quotes and a certain degree of smooth- ness. When present values of building instruments…
The paper values perpetual callable American volatility options using a mean-reverting volatility model.
Modified model prevents volatility from approaching zero.
Study of volume dynamics at market spread in Bitcoin/USD.
Study shows marketable order routing to wholesalers benefits all traders, leading to lower market depth and price volatility.
One of the peculiarities of power and gas markets is the delivery mechanism of forward contracts. The seller of a futures contract commits to deliver, say, power, over a certain period, while the classical forward is a financial agreement settled on a maturity date. Our purpose is to design a Heath-Jarrow-Morton framew…
Improved deep learning performance in financial markets by using rank space.
Using Trades and Quotes data from the Paris stock market, we show that the random walk nature of traded prices results from a very delicate interplay between two opposite tendencies: long-range correlated market orders that lead to super-diffusion (or persistence), and mean reverting limit orders that lead to sub-diffu…
Optimizes trading large volumes of volatile assets with fast mean-reverting volatility.
The paper examines utility maximization in markets with hidden Gaussian drift, finding restrictions on model parameters.
Optimal trading is a recent field of research which was initiated by Almgren, Chriss, Bertsimas and Lo in the late 90's. Its main application is slicing large trading orders, in the interest of minimizing trading costs and potential perturbations of price dynamics due to liquidity shocks. The initial optimization frame…
The paper extends the market price of risk for electricity swap contracts, incorporating jump risk.
Optimal timing strategy for mean-reverting price spreads.
Most energy and commodity markets exhibit mean-reversion and occasional distinctive price spikes, which results in demand for derivative products which protect the holder against high prices. To this end, in this paper we present exact and fast methodologies for the simulation of the spot price dynamics modeled as the …
Most models for barrier pricing are designed to let a market maker tune the model-implied covariance between moves in the asset spot price and moves in the implied volatility skew. This is often implemented with a local volatility/stochastic volatility mixture model, where the mixture parameter tunes that covariance. T…
The paper models exchange rate risk premium using mean-reverting dynamics.
Recent empirical studies suggest that the volatilities associated with financial time series exhibit short-range correlations. This entails that the volatility process is very rough and its autocorrelation exhibits sharp decay at the origin. Another classic stylistic feature often assumed for the volatility is that it …
We consider the Nordic electricity spot market from mid 1992 to the end of year 2000. This market is found to be well approximated by an anti-persistent self-affine (mean-reverting) walk. It is characterized by a Hurst exponent of over three orders of magnitude in time ranging from days to years. We argu…
We study the Merton problem of optimal consumption-investment for the case of two investors sharing a final wealth. The typical example would be a husband and wife sharing a portfolio looking to optimize the expected utility of consumption and final wealth. Each agent has different utility function and discount factor.…
Solves optimal control for trading multiple mean-reverting assets.
The recent liberalization of the electricity and gas markets has resulted in the growth of energy exchanges and modelling problems. In this paper, we modelize jointly gas and electricity spot prices using a mean-reverting model which fits the correlations structures for the two commodities. The dynamics are based on Or…
The paper studies efficient simulation methods for financial firm values under fast mean-reverting volatility.