In this paper we investigate the adaptive market efficiency of the agricultural commodity futures market, using a sample of eight futures contracts. Using a battery of nonlinear tests, we uncover the nonlinear serial dependence in the returns series. We run the Hinich portmanteau bicorrelation test to uncover the momen…
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48 results for “nonlinear markets”
The paper introduces a framework to assess nonlinear causality in financial markets.
problem Identifying and quantifying co-dependence between financial instruments.
method Transfer entropy and convergent cross-mapping methods to assess linear and nonlinear causality.
result Stock indices exhibit significant nonlinear causality, and correlation underestimates causality.
Study pricing derivatives in nonlinear models with market frictions.
problem No-arbitrage pricing of derivatives in nonlinear market models with funding costs, credit risk, and trading frictions.
method Extend nonlinear pricing approach by incorporating funding costs, credit risk, and trading frictions.
result Developed a comprehensive framework for pricing derivatives in nonlinear market models.
Extends pricing of American options in nonlinear markets.
problem Pricing American options in nonlinear markets.
method Detailed study of unilateral valuation problems, BSDE approach.
result Explicit pricing, hedging, and exercising results.
Study optimal investment and consumption in incomplete markets with nonlinear expectations.
problem Utility maximization in incomplete markets with general constraints.
method Utilizes -martingale method to solve optimization problem for various utility functions.
result Characterizes optimal investment-consumption strategy through quadratic BSDE solutions.
Detecting imbalanced financial markets through time-varying optimization and nonlinear functionalsq-fin.MF
The paper analyzes equity market dynamics and optimal portfolios using time-varying optimization.
problem Analyzing the time-varying structure of equity markets, particularly market capitalization inequality and concentration.
method The study employs mathematical functionals of time-varying portfolios and a Sharpe optimization procedure.
result Optimal portfolios exhibit varying market capitalization exposure over time.
Online social networks offer a new way to investigate financial markets' dynamics by enabling the large-scale analysis of investors' collective behavior. We provide empirical evidence that suggests social media and stock markets have a nonlinear causal relationship. We take advantage of an extensive data set composed o…
Study game options pricing in nonlinear markets, extending previous work.
problem Pricing game options in nonlinear markets without arbitrage.
method Detailed study of unilateral pricing, hedging, and exercising problems using BSDE approach.
result Explicit results obtained under suitable assumptions about solutions to BSDEs.
Stock market integration in the Latin American markets: further evidence from nonlinear modelingq-fin.ST
This article studies the financial integration between the six main Latin American markets and the US market in a nonlinear framework. Using the threshold cointegration techniques of Hansen and Seo (2002), we show significant threshold stock market linkages between Mexico, Chile and the US. Thus, the dynamics of these …
Modeling market impacts leads to perfect hedging strategies.
problem Trading with permanent market impacts and nonlinearity.
method Modeling market impacts using g-expectation and nonlinear stochastic integrals; introducing completeness condition for perfect replication.
result Under certain conditions, derivatives can be perfectly hedged dynamically.
Linear and nonlinear market correlations: characterizing financial crises and portfolio optimizationq-fin.ST
Investigates stock correlations during market crises, finds nonlinear dependencies increase, and optimizes portfolios.
problem Investigating stock correlations during market crises.
method Pearson correlation and mutual information based complex networks, surrogate data for nonlinear dependencies, Markowitz mean variance portfolio optimization.
result Nonlinear dependencies increase during financial market crises, not reducing to linear correlations.
Market Mill Dependence Pattern in the Stock Market: Asymmetry Structure, Nonlinear Correlations and Predictabilityphysics.soc-ph
An empirical study of joint bivariate probability distribution of two consecutive price increments for a set of stocks at time scales ranging from one minute to thirty minutes reveals asymmetric structures with respect to the axes y=0, y=x, x=0 and y=-x. All four asymmetry patterns remarkably resemble a four-blade mill…
This paper examines the short-run relationships between oil prices and GCC stock markets. Since GCC countries are major world energy market players, their stock markets may be susceptible to oil price shocks. To account for the fact that stock markets may respond nonlinearly to oil price shocks, we have examined both l…
Nonlinear option pricing models for illiquid markets: scaling properties and explicit solutionsq-fin.PR
Several models for the pricing of derivative securities in illiquid markets are discussed. A typical type of nonlinear partial differential equations arising from these investigation is studied. The scaling properties of these equations are discussed. Explicit solutions for one of the models are obtained and studied.
New techniques identify shifts in financial market sectors.
problem Identifying shifts in financial market structure and composition.
method Developed new mathematical techniques to identify nonlinear shifts in market sectors.
result Identified meaningful sector-to-sector mappings and optimal portfolio styles.
Paper generalizes Hardy-Rogers maps for market equilibrium analysis in duopoly markets.
problem Existence and uniqueness of market equilibrium in duopoly markets with non-differentiable, nonlinear response functions.
method Coupled fixed points approach for generalized Hardy-Rogers maps.
result Enriched understanding of market equilibrium in duopoly markets with non-differentiable response functions.
Semi-parametric Realized Nonlinear Conditional Autoregressive Expectile and Expected Shortfallq-fin.RM
Bayesian method forecasts market risks using expectiles and expected shortfall.
problem Forecasting market risks with high precision.
method Bayesian Markov Chain Monte Carlo method with nonlinear threshold specification.
result Empirical support for the proposed models in market indices forecasting.
We introduce and study a non-equilibrium continuous-time dynamical model of the price of a single asset traded by a population of heterogeneous interacting agents in the presence of uncertainty and regulatory constraints. The model takes into account (i) the price formation delay between decision and investment by the …
This paper presents a stochastic model for discrete-time trading in financial markets where trading costs are given by convex cost functions and portfolios are constrained by convex sets. The model does not assume the existence of a cash account/numeraire. In addition to classical frictionless markets and markets with …
Market illiquidity, feedback effects, presence of transaction costs, risk from unprotected portfolio and other nonlinear effects in PDE based option pricing models can be described by solutions to the generalized Black-Scholes parabolic equation with a diffusion term nonlinearly depending on the option price itself. Di…
Superhedging in illiquid marketsq-fin.PR
We study contingent claims in a discrete-time market model where trading costs are given by convex functions and portfolios are constrained by convex sets. In addition to classical frictionless markets and markets with transaction costs or bid-ask spreads, our framework covers markets with nonlinear illiquidity effects…
We investigate large changes, bursts, of the continuous stochastic signals, when the exponent of multiplicativity is higher than one. Earlier we have proposed a general nonlinear stochastic model which can be transformed into Bessel process with known first hitting (first passage) time statistics. Using these results w…
Forecasting Uncertain Events with Small Groupscond-mat.stat-mech
We present a novel methodology for predicting future outcomes that uses small numbers of individuals participating in an imperfect information market. By determining their risk attitudes and performing a nonlinear aggregation of their predictions, we are able to assess the probability of the future outcome of an uncert…
In this chapter we studied the nonlinear co-movements between the Mexican Crude Oil price, the Mexican Stock Market Index and the USD/MXN Exchange Rate, for the sample period from 1994 to date. We used a battery of nonlinear tests, cf. (Patterson & Ashley, 2000) and one multivariate test, in order to determine the dyna…
The paper optimizes portfolios to minimize drawdown, outperforming market indices.
problem Minimizing drawdown in financial portfolios.
method Formulated as a nonlinear program, partially linearized, solved using SCIP.
result Minimal drawdown portfolios outperform market indices in return, Sharpe ratio, maximum and average drawdown.
We investigate the behavior of the Shanghai Stock Exchange Composite (SSEC) index for the period from 1990:12 to 2007:06 using an unconstrained two-regime threshold autoregressive (TAR) model with an unit root developed by Caner and Hansen. The method allows us to simultaneously consider non-stationarity and nonlineari…
In this paper we use the Brooks and Hinich cross-bicorrelation test in order to uncover nonlinear dependence periods between USA Standard and Poor 500 (SP500), used as benchmark, and six Latin American stock markets indexes: Mexico (BMV), Brazil (BOVESPA), Chile (IPSA), Colombia (COLCAP), Peru (IGBVL) and Argentina (ME…
There are two schools of thought regarding market impact modeling. On the one hand, seminal papers by Almgren and Chriss introduced a decomposition between a permanent market impact and a temporary (or instantaneous) market impact. This decomposition is used by most practitioners in execution models. On the other hand,…
The study explains how market-makers' hedging affects stock volatility during gamma-squeeze events.
problem Endogenous volatility amplification in option markets during gamma-squeeze events.
method Developed a theoretical framework linking hedging behavior and market turbulence, incorporating beta-normalized volatility.
result Low-beta stocks amplify volatility more during gamma-squeeze events.
Market depth and price dynamics: A notecond-mat.other
This note explores the consequences of nonlinear price impact functions on price dynamics within the chartist-fundamentalist framework. Price impact functions may be nonlinear with respect to trading volume. As indicated by recent empirical studies, a given transaction may cause a large (small) price change if market d…
The paper investigates non-linear and heavy-tailed predictability in transition-energy financial markets.
problem Incomplete representation of dependence structure in Gaussian-linear forecasting frameworks.
method Develops a hybrid forecasting framework combining Student-t Vector Autoregressions with nonlinear recurrent residual learning architectures.
result The proposed framework consistently improves predictive accuracy relative to conventional models, especially during macro-financial stress.
This paper analyzes the direction of the causality between crude oil, gold and stock markets for the largest economy in the world with respect to such markets, the US. To do so, we apply non-linear Granger causality tests. We find a nonlinear causal relationship among the three markets considered, with the causality go…
Families of explicit solutions are found to a nonlinear Black-Scholes equation which incorporates the feedback-effect of a large trader in case of market illiquidity. The typical solution of these families will have a payoff which approximates a strangle. These solutions were used to test numerical schemes for solving …
The paper solves portfolio selection for complex preferences in continuous time.
problem Dynamic portfolio selection for nonlinear preferences with time inconsistency.
method Stochastic maximum principle and verification theorems for equilibrium strategies.
result Equilibrium strategies derived in closed form for CRRA and CARA preferences.
Nonlinear Stochastic Model of Return matching to the data of New York and Vilnius Stock Exchangesq-fin.ST
We scale and analyze the empirical data of return from New York and Vilnius stock exchanges matching it to the same nonlinear double stochastic model of return in financial market.
Model predicts three market regimes: Good, Bad, and Ugly.
problem Understanding market dynamics and predicting different market states.
method Developed a nonlinear diffusion model of price formation with feedback from money flows and memory of past flows.
result The model predicts three distinct market regimes: Good, Bad, and Ugly.
The study uses DCC for financial market analysis, revealing hidden correlations.
problem Identifying hidden nonlinear correlations in financial markets.
method Agglomerative hierarchical clustering with distance correlation coefficient.
result DCC reveals more information than Pearson correlation for financial data.
In this paper, we study a type of reflected BSDE with a constraint and introduce a new kind of nonlinear expectation via BSDE with a constraint and prove the Doob-Meyer decomposition with respect to the super(sub)martingale introduced by this nonlinear expectation. We then apply the results to the pricing of American o…
We study pricing and superhedging strategies for game options in an imperfect market with default. We extend the results obtained by Kifer in \cite{Kifer} in the case of a perfect market model to the case of an imperfect market with default, when the imperfections are taken into account via the nonlinearity of the weal…
Financial rogue wavesq-fin.PR
The financial rogue waves are reported analytically in the nonlinear option pricing model due to Ivancevic, which is nonlinear wave alternative of the Black-Scholes model. These solutions may be used to describe the possible physical mechanisms for rogue wave phenomenon in financial markets and related fields.
The paper extends asset pricing theory by considering conditional markets.
problem Analyzing financial markets with conditional information.
method Time consistency properties of dynamic nonlinear expectations applied to super- and subhedging prices.
result Derives a conditional version of the second fundamental theorem of asset pricing.
Paper uses Ricci curvature to measure and forecast China's stock market stability.
problem Measuring and predicting systemic stability of China's stock market.
method Geometric measure derived from discrete Ricci curvature applied to financial networks.
result Ricci curvature effectively captures market stability and predicts future trends.
Paper uses machine learning to uncover nonlinear dynamics in CAT bond pricing.
problem Traditional linear models miss nonlinear relationships in CAT bond pricing.
method Advanced machine learning techniques applied to CAT bond transaction records.
result Machine learning enhances CAT bond pricing accuracy and reveals complex risk interactions.
Investor optimizes utility in a market with endogenous pricing.
problem Maximizing utility in an incomplete market with endogenous pricing.
method Characterized optimality via FBSDEs and BSPDEs using generalized subgradients.
result Existence and smoothness of solutions for optimal investment and FBSDEs.
The sustainability conditions for the market participants with a different ownership model were also determined. It was revealed, that the nonlinear form of the equations describing the market behavior with the prevailing private capital, predetermines the development of such a market according to the subharmonic casca…
Modeling reinsurance market, we find subgame perfect Nash equilibria.
problem Optimizing reinsurance market with multiple insurers and reinsurers.
method Sequential game with Subgame Perfect Nash Equilibria analysis.
result Characterized subgame perfect Nash equilibria in some market cases.
Modeling financial chaos with market makers' risk appetite.
problem Unpredictable price changes in financial markets.
method Using Hamiltonian approach with anharmonic oscillators and nonlinear coupling.
result Market makers' risk appetite determines chaotic dynamics in financial markets.
Square-Root Price Impact Is Necessary for Endogenous Manipulation Cycles in Learning-Agent Marketsq-fin.CP
Agent-based market shows herding cycles with square-root price impact.
problem Understanding herding cycles in agent-based markets.
method Agent-based model with 20,000 retail traders interacting with a single institutional agent.
result Agent discovers multi-cycle predatory strategy with 8-11 complete cycles over 2000 trading days.