arXiv research

It is commonly believed that the correlations between stock returns increase in high volatility periods. We investigate how much of these correlations can be explained within a simple non-Gaussian one-factor description with time independent correlations. Using surrogate data with the true market return as the dominant…

Study long-only minimum variance portfolio in one-factor market with arbitrary sign betas.

We study the inter-stock correlations for the largest companies listed on Warsaw Stock Exchange and included in the WIG20 index. Our results from the correlation matrix analysis indicate that the Polish stock market can be well described by a one factor model. We also show that the stock-stock correlations tend to incr…

This paper corrects an error in [Keller-Ressel, M. and Steiner T. "Yield curve shapes and the asymptotic short rate distribution in affine one-factor models." Finance and Stochastics 12.2 (2008): 149-172]. The error concerns the correct expression for the boundary between normal and humped yield curve behavior in affin…

AlphaZeroBeta uses deep reinforcement learning for market-neutral portfolios, outperforming traditional methods.

This paper analyzes the equilibrium distribution of wealth in an economy where firms' productivities are subject to idiosyncratic shocks, returns on factors are determined in competitive markets, dynasties have linear consumption functions and government imposes taxes on capital and labour incomes and equally redistrib…

We investigate a solution for the problems related to the application of multivariate GARCH models to markets with a large number of stocks by restricting the form of the conditional covariance matrix. The model is a factor model and uses only six free GARCH parameters. One factor can be interpreted as the market compo…

We consider the decomposition of a compact-type symmetric space into a product of factors and show that the rank-one factors, when considered as totally geodesic submanifolds of the space, are isolated from inequivalent minimal submanifolds.

We study in details the skew of stock option smiles, which is induced by the so-called leverage effect on the underlying -- i.e. the correlation between past returns and future square returns. This naturally explains the anomalous dependence of the skew as a function of maturity of the option. The market cap dependence…

Even in the simple one-factor credit portfolio model that underlies the Basel II regulatory capital rules coming into force in 2007, the exact contributions to credit value-at-risk can only be calculated with Monte-Carlo simulation or with approximation algorithms that often involve numerical integration. As this may r…

The paper studies Fourier-Laplace transforms in polynomial OU volatility models for option pricing.

The dynamics of the equal-time cross-correlation matrix of multivariate financial time series is explored by examination of the eigenvalue spectrum over sliding time windows. Empirical results for the S&P 500 and the Dow Jones Euro Stoxx 50 indices reveal that the dynamics of the small eigenvalues of the cross-correlat…

Robust and reliable covariance estimates play a decisive role in financial and many other applications. An important class of estimators is based on Factor models. Here, we show by extensive Monte Carlo simulations that covariance matrices derived from the statistical Factor Analysis model exhibit a systematic error, w…

Dynamic factor analysis reveals insights into Philippine stock market dynamics.

We analyze analytic approximation formulae for pricing zero-coupon bonds in the case when the short-term interest rate is driven by a one-factor mean-reverting process with a volatility nonlinearly depending on the interest rate itself. We derive the order of accuracy of the analytical approximation due to Choi and Wir…

A one-factor asset pricing model with an Ornstein--Uhlenbeck process as its state variable is studied under partial information: the mean-reverting level and the mean-reverting speed parameters are modeled as hidden/unobservable stochastic variables. No-arbitrage pricing formulas for derivative securities written on a …

We consider a general one-factor short rate model, in which the instantaneous interest rate is driven by a univariate diffusion with time independent drift and volatility. We construct recursive formula for the coefficients of the Taylor expansion of the bond price and its logarithm around $τ=0$, where $τ$ is time to m…

Proposes a new model for negative interest rates that fits market data closely.

A new model fits SPX and VIX volatility surfaces and term structures efficiently.

We show that S-arithmetic lattices in semisimple Lie groups with no rank one factors are quasi-isometrically rigid.

The Hull-White one factor model is used to price interest rate options. The parameters of the model are often calibrated to simple liquid instruments, in particular European swaptions. It is therefore very important to have very efficient pricing formula for simple instruments. Such a formula is proposed here for Europ…

We presented Bayesian portfolio selection strategy, via the $k$ factor asset pricing model. If the market is information efficient, the proposed strategy will mimic the market; otherwise, the strategy will outperform the market. The strategy depends on the selection of a portfolio via Bayesian multiple testing methodol…

Paper addresses xVA models for market-implied skew and smile.

The purpose of this paper is to study the generalized Fong--Vasicek two-factor interest rate model with stochastic volatility. In this model the dispersion of the stochastic short rate (square of volatility) is assumed to be stochastic as well and it follows a non-negative process with volatility proportional to the sq…

A new model optimizes portfolios by learning stock return distributions conditioned on factors.

The paper analyzes how ESG investors can prioritize green stocks without sacrificing overall wealth.

Dynamic risk factor model improves portfolio performance in high dimensions.

Survey on factor models and their applications in econometrics.

This study provides a consistent and efficient pricing method for both Standard & Poor's 500 Index (SPX) options and the Chicago Board Options Exchange's Volatility Index (VIX) options under a multiscale stochastic volatility model. To capture the multiscale volatility of the financial market, our model adds a fast sca…

We extend the estimate obtained in [1] for the mean curvature of a cylindrically bounded proper submanifold in a product manifold with an Euclidean space as one factor to a general product ambient space endowed with a warped product structure.

Study on electronic banking satisfaction in Nigeria.

We determine an explicit formula for the Laplace transform of the price of an option on a maximal interest rate when the instantaneous rate satisfies Cox-Ingersoll-Ross's model. This generalizes considerably one result of Leblanc-Scaillet.

Pricing formulae for defaultable corporate bonds with discrete coupons under consideration of the government taxes in the united model of structural and reduced form models are provided. The aim of this paper is to generalize the comprehensive structural model for defaultable fixed income bonds (considered in [1]) into…

Study finds rough volatility models underperform in SPX option pricing.

We review the recently introduced concept of variety of a financial portfolio and we sketch its importance for risk control purposes. The empirical behaviour of variety, correlation, exceedance correlation and asymmetry of the probability density function of daily returns is discussed. The results obtained are compared…

This thesis applies entropy as a model independent measure to address three research questions concerning financial time series. In the first study we apply transfer entropy to drawdowns and drawups in foreign exchange rates, to study their correlation and cross correlation. When applied to daily and hourly EUR/USD and…

We abstract Morimoto's construction of complex structures on product manifolds to pairs of certain generalized $F$-structures on manifolds that are not necessarily global products. As applications we characterize invariant generalized complex structures on product manifolds in which one factor is a Lie group and we gen…

In the option valuation literature, the shortcomings of one factor stochastic volatility models have traditionally been addressed by adding jumps to the stock price process. An alternate approach in the context of option pricing and calibration of implied volatility is the addition of a few other factors to the volatil…

Let $(M,g)$ be a compact manifold with boundary and $Ric_g\geq (n-1)g$, Hang and Wang proved that $(M,g)$ is isometric to the standard hemisphere if $\partial M$ is convex and isometric to $\mathbb{S}^{n-1}(1)$. We prove some rigidity theorems when $\partial M$ is isometric to a product manifold where one factor is th…

Study on factorizations of knot polynomials for up to 12 crossings.

Bernstein processes are Brownian diffusions that appear in Euclidean Quantum Mechanics. Knowledge of the symmetries of the Hamilton-Jacobi-Bellman equation associated with these processes allows one to obtain relations between stochastic processes (Lescot-Zambrini, Progress in Probability, vols 58 and 59). More recentl…

We discuss the relationship between the m-th homotopy group of the one-point union of r copies of the two-dimensional sphere and the m-th homotopy group of the one-point union of r+1 copies of the Thom space of the oriented two-dimensional universal vector bundle. Using a suitably choosen isomorphism between them a for…

We construct a no-arbitrage model of bond prices where the long bond is used as a numeraire. We develop bond prices and their dynamics without developing any model for the spot rate or forward rates. The model is arbitrage free and all nominal interest rates remain positive in the model. We give examples where our mode…

New method for pricing American options in time-dependent models, improving accuracy and efficiency.

Develops ML method for solving financial equations.

In this paper we compare two classical one-factor diffusion models which are used to model the term structure of interest rates. One of them is based on the Wiener-Bachelier process while the second one is based on the Ornstein-Uhlenbeck process. We show essential differences between the prices of European call options…

Study high-dimensional covariance matrix estimators for complex portfolios, improving financial metrics.

Extended study improves covariance matrix estimation for portfolio managers.