Investigates JM for reducing downside risk in market regimes.
problem Mitigating downside risk during market downturns.
method Statistical jump model for identifying market regimes, optimizing penalty for state transitions.
result JM-guided strategies outperform traditional models in reducing risk and enhancing returns.
Model predicts stock returns from CDS spreads, useful for trading.
problem Predicting stock returns from market sentiment.
method Simple model with regime switching, analytically tractable.
result Extracts expected returns from CDS spreads, useful for statistical arbitrage.
The article uses dynamic factor allocation to improve portfolio performance by integrating regime-switching signals.
problem Improving portfolio performance through dynamic factor allocation.
method The authors apply the sparse jump model (SJM) to identify bull and bear market regimes for individual factors, then fine-tune hyperparameters using a hypothetical single-factor long-short strategy. These regime inferences are incorporated into the Black-Litterman framework to dynamically adjust allocations among indices.
result The constructed multi-factor portfolio significantly improves the information ratio (IR) relative to the market, raising it from 0.05 to approximately 0.4.
Model shows stock markets can be inefficiently mispriced.
problem Limits of informationally efficient stock markets.
method Chartist-fundamentalist model with chartists and fundamentalists trading conditions.
result Stock markets can exhibit constant or oscillatory mispricing.
New algorithms improve sampling from complex distributions.
problem Sampling from complex probability distributions efficiently.
method Regime-switching Langevin dynamics and Monte Carlo algorithms.
result Convergence guarantees and iteration complexities provided.
We introduce an algorithm for the segmentation of a class of regime switching processes. The segmentation algorithm is a non parametric statistical method able to identify the regimes (patches) of the time series. The process is composed of consecutive patches of variable length, each patch being described by a station…
Regime switching volatility models provide a tractable method of modelling stochastic volatility. Currently the most popular method of regime switching calibration is the Hamilton filter. We propose using the Baum-Welch algorithm, an established technique from Engineering, to calibrate regime switching models instead. …
Optimal futures trading strategy in a changing market model.
problem Dynamic trading in a regime-switching market.
method Utility maximization approach with HJB equations reduced to linear ODEs.
result Optimal futures positions and portfolio value across market regimes.
We have developed a statistical technique to test the model assumption of binary regime switching extension of the geometric Brownian motion (GBM) model by proposing a new discriminating statistics. Given a time series data, we have identified an admissible class of the regime switching candidate models for the statist…
Study optimal portfolios in a non-Markovian regime-switching model with random time horizon.
problem Optimal portfolio selection in a market with non-Markovian regime-switching and random time horizon.
method Formulated as a constrained stochastic linear-quadratic optimal control problem, derived closed-form expressions for optimal portfolios and efficient frontier.
result Closed-form expressions for optimal portfolios and efficient frontier derived under non-Markovian regime-switching and random time horizon.
A new method for pricing European options in changing market conditions.
problem Lack of closed-form solutions for pricing European options in regime-switching models.
method Physics-informed residual learning (PIRL) for efficient option pricing.
result PIRL eliminates the need for retraining and offers near-instantaneous pricing.
The paper optimizes portfolios using a new GARCH model with regime switching and tempered stable innovations.
problem Mitigating left tail risk in multi-asset portfolios.
method Proposes a Markov regime-switching GARCH model with multivariate normal tempered stable innovation (MRS-MNTS-GARCH) for portfolio optimization.
result Optimal portfolios with tail risk measures outperform standard deviation-based portfolios and equally weighted portfolios in various performance metrics.
Study optimal liquidation with multiple regimes using BSDEs with singular terminal values.
problem Optimal liquidation with regime switching in dark pools.
method Introduced a system of BSDEs with jumps and singular terminal values.
result Existence and uniqueness results for the BSDE system are obtained.
Markov regime switching models have been used in numerous empirical studies in economics and finance. However, the asymptotic distribution of the likelihood ratio test statistic for testing the number of regimes in Markov regime switching models has been an unresolved problem. This paper derives the asymptotic distribu…
Investigates optimal portfolio selection with regime-switching-induced stock price shocks.
problem Mean-variance portfolio selection with regime-switching and stock price jumps.
method Modeling regime-switching and stock price jumps, deriving optimal portfolio strategy and efficient frontier using ODEs.
result Added complexity due to regime-switching-induced stock price shocks, leading to nonlinear ODEs.
Study optimal stopping times under regime-switching models with constraints.
problem Optimal stopping times for discounted payoffs on a regime-switching geometric Brownian motion.
method Solve variational inequality to find value functions and optimal thresholds.
result Existence and expressions of optimal stopping times under specific conditions.
Model interest rates and energy futures with regime-switching dynamics.
problem Modeling interest rates and energy futures with regime-switching dynamics.
method HJM model with Markov-chain modulated forward rates, proving affine structure for term structure.
result Explicit solutions for forward curves in many cases.
A hybrid approach detects financial market regime switches using PCA and k-means.
problem Detecting regime switches in financial markets for trend forecasting.
method Dimensionality reduction with PCA and clustering with k-means.
result Trading strategies based on detected regimes show improved performance.
This paper compares hedging strategies for pegged FX markets using a RS model.
problem Hedging performance in pegged foreign exchange markets.
method Regime switching model, Fourier approach for calibration, exact and approximated delta hedging.
result Approximated RS delta hedge is a viable alternative to the exact RS delta hedge and significantly faster.
Pricing financial or real options with arbitrary payoffs in regime-switching models is an important problem in finance. Mathematically, it is to solve, under certain standard assumptions, a general form of optimal stopping problems in regime-switching models. In this article, we reduce an optimal stopping problem with …
Algorithm solves American options with regime-switching using multigrid and compact finite difference.
problem Pricing American put options with regime-switching.
method Multigrid iterative algorithm based on compact finite difference schemes and Hermite interpolation.
result The algorithm provides a fast and efficient tool for pricing American put options with regime-switching.
We consider option pricing in a regime-switching diffusion market. As the market is incomplete, there is no unique price for a derivative. We apply the good-deal pricing bounds idea to obtain ranges for the price of a derivative. As an illustration, we calculate the good-deal pricing bounds for a European call option a…
Paper solves complex game theory problems with new equations.
problem Zero-sum stochastic games with non-Markovian switching.
method New multidimensional SRE and BSDE solutions.
result Existence and uniqueness of SRE solutions.
This paper is concerned with cost optimization of an insurance company. The surplus of the insurance company is modeled by a controlled regime switching diffusion, where the regime switching mechanism provides the fluctuations of the random environment. The goal is to find an optimal control that minimizes the total co…
In this paper, we consider the problem of pricing discretely-sampled variance swaps based on a hybrid model of stochastic volatility and stochastic interest rate with regime-switching. Our modelling framework extends the Heston stochastic volatility model by including the CIR stochastic interest rate and model paramete…
Optimizes consumption under regime-switching economic states with risk-sensitive preferences.
problem Optimizing consumption in an economy with uncertain states and random shocks.
method Risk-sensitive optimization of consumption-utility with a Markov chain model of economic states and i.i.d. random shocks.
result Existence of unique optimal policy and value function in stationary policies.
Develops identifiability theory for multi-lag regime-switching models.
problem Ensuring interpretability of deep latent variable models with multi-lag dependencies.
method Formulates a general theoretical framework for multi-lag Regime-Switching Models (RSMs), proving identifiability of number of regimes and multi-lag transitions.
result Establishes identifiability conditions for multi-lag regime-switching models, including Markov Switching Models and Switching Dynamical Systems.
Optimal credit and consumption strategies in a switching market with default contagion.
problem Optimal portfolio and consumption decisions in a credit market with default contagion.
method Cobb-Douglas utility, recursive ODE system, backward solution from all-default state.
result Existence and uniqueness of optimal feedback controls, verification theorem.
Paper extends Lévy models with memory to better price FX double barrier options.
problem Efficiently pricing double barrier options in complex FX models.
method Introduces regime-switching Lévy models with memory and a modified numerical method.
result New models and method improve accuracy of option pricing.
Paper derives analytical formulas for NLD-CEV moments with regime switching.
problem Analytical tractability of NLD-CEV models under stochastic regimes.
method Hybrid system approach using Feynman-Kac formula for solving interconnected PDEs.
result Exact closed-form expressions for fractional-order conditional moments.
In this paper, we consider the optimal dividend problem for a company. We describe the surplus process of the company by a diffusion model with regime switching. The aim of the company is to choose a dividend policy to maximize the expected total discounted payments until ruin. In this article, we consider a hybrid div…
New risk measures incorporate economic states to assess crude oil derivatives.
problem Assessing risk in crude oil derivatives with varying economic conditions.
method Introduced regime switching entropic risk measures using Markov chains.
result Closed formulae for risk measures derived, showing term structure and mean-reverting convenience yield.
We study a portfolio selection problem in a continuous-time Itô-Markov additive market with prices of financial assets described by Markov additive processes which combine Lévy processes and regime switching models. Thus the model takes into account two sources of risk: the jump diffusion risk and the regime switching …
We pick up the regime switching model for asset returns introduced by Rogers and Zhang. The calibration involves various markets including implied volatility in order to gain additional predictive power. We focus on the calculation of risk measures by Fourier methods that have successfully been applied to option pricin…
This paper studies the optimal VIX futures trading problems under a regime-switching model. We consider the VIX as mean reversion dynamics with dependence on the regime that switches among a finite number of states. For the trading strategies, we analyze the timings and sequences of the investor's market participation,…
Study optimal liquidation strategies with infinite horizon and regime switching.
problem Optimal liquidation with semimartingale strategies in a stochastic environment.
method Characterization of value function and optimal strategy via BSDEs with infinite horizon.
result Existence and uniqueness of optimal control problem solutions.
In this paper, we consider a discrete time economy where we assume that the short term interest rate follows a quadratic term structure of a regime switching asset process. The possible non-linear structure and the fact that the interest rate can have different economic or financial trends justify the interest of Regim…
Temporal Functional Circuits explain KAN forecasts with interpretable edge functions.
problem Lack of mechanistic explanations in KAN forecasting.
method Transform KAN edge functions into faithful, temporally grounded explanations using a gated residual KAN.
result Gated KAN achieves lower MSE than linear-only models on regime-switching signals.
In this paper we treat a gas storage valuation problem as a Markov Decision Process. As opposed to existing literature we model the gas price process as a regime-switching model. Such a model has shown to fit market data quite well in Chen and Forsyth (2010). Before we apply a numerical algorithm to solve the problem, …
Study optimal investment and reinsurance for insurance companies in a dynamic market model.
problem Optimal investment and reinsurance strategies for insurance companies in a regime-switching market model.
method Forward dynamic exponential utility, value function construction, proportional reinsurance optimization.
result Characterization of optimal investment strategy and proportional reinsurance level.
Optimized portfolio management with dynamic market regimes using RL and OC learning.
problem Mean-Variance portfolio optimization in a regime-switching market.
method Reinforcement learning (RL) with Orthogonality Condition (OC) learning for regime-switching market dynamics.
result OC learning outperforms TD learning in simulated and real market scenarios, leading to better portfolio performance.
This paper studies an optimal investment and risk control problem for an insurer with default contagion and regime-switching. The insurer in our model allocates his/her wealth across multi-name defaultable stocks and a riskless bond under regime-switching risk. Default events have an impact on the distress state of the…
Study improves S&P 500 volatility forecasting through regime-switching methods.
problem Accurate prediction of S&P 500 volatility for risk management and investment.
method Regime-switching methods including soft Markov switching, spectral clustering, and coefficient-based clustering.
result Coefficient-based clustering algorithm outperformed other models during all time periods.
Optimizes dividend payouts with fixed costs and regime switching.
problem Maximizing dividends with fixed transaction costs and regime switching.
method Identifies optimal dividend strategy as a two-barrier impulsive strategy.
result Explicit determination of optimal strategy for various drift and volatility scenarios.
The paper improves energy contract pricing models by incorporating jumps and varying parameters.
problem Inaccurate pricing of energy contracts using the Black-Scholes-Merton model.
method Integrates regime switching and time-changed Levy processes with a two-state Markov chain.
result Improved accuracy in pricing energy contracts through a new model.
The paper solves a complex control problem with stochastic elements and switching conditions.
problem Non-homogeneous stochastic LQ control with regime switching and random coefficients.
method Explicit optimal control and value obtained through two systems of backward stochastic differential equations (BSDEs). Existence and uniqueness of solutions proved using BMO martingales and contraction mapping method.
result Explicit optimal state feedback control and optimal value derived for the problem.
Pricing and hedging rainbow options using Bayesian MS-VAR process.
problem Pricing and hedging rainbow options under varying economic conditions.
method Bayesian Markov-Switching Vector Autoregressive (MS-VAR) process to model regime-switching economic variables.
result Model provides a simpler and more economic variable-dependent approach for rainbow options pricing and hedging.
Develops a new model to better predict corporate bond yields.
problem Persistent shifts in interest rates undermine single-regime models.
method Regime-switching generalized CIR model with two-state short-rate process and credit factors.
result The model improves joint curve fit and delivers interpretable probabilities.