Framework for systemic risk modeling using jointly exchangeable arrays.
problem Systemic risk in insurance portfolios with interactions.
method Jointly exchangeable arrays, central limit theorems, simulation-based validation.
result Asymptotic approximations for total portfolio losses in large portfolios over long time horizons.
Extended PELCoV for bivariate Student-t copulas to monitor foreign exchange risk.
problem Monitoring financial risk under asymmetric co-movements and tail dependence.
method Extending PELCoV to Student-t copulas, tracking dynamic risk spillovers.
result Potential to detect early signs of risk underestimation during financial stress.
The paper models exchange rate risk premium using mean-reverting dynamics.
problem Empirical failure of uncovered interest parity (UIP).
method Modeling risk premium using Ornstein-Uhlenbeck (OU) process embedded in stochastic differential equation for exchange rate.
result The model shows strong predictive performance at short and long horizons, but underperforms at intermediate horizons.
Paper compares MCMC-based copula methods for exchange option pricing.
problem Pricing exchange options using copulas and MCMC.
method Risk-neutral pricing, copulas, and MCMC algorithm.
result Different copula models provide similar option prices except Gumbel.
In this paper we attempt to introduce an econophysics approach to evaluate some aspects of the risks in financial markets. For this purpose, the thermodynamical methods and statistical physics results about entropy and equilibrium states in the physical systems are used. Some considerations on economic value and financ…
The geometric Lévy model (GLM) is a natural generalisation of the geometric Brownian motion model (GBM) used in the derivation of the Black-Scholes formula. The theory of such models simplifies considerably if one takes a pricing kernel approach. In one dimension, once the underlying Lévy process has been specified, th…
Study liquidity provision in decentralized exchanges considering risk aversion and replication costs.
problem Economic viability of liquidity provision in decentralized exchanges (DEXs).
method Formulated strategic interactions as a sequential game with risk-averse LP, traders, and arbitrageurs.
result DEX liquidity depth is crucial for risk management, influenced by risk aversion and replication costs.
Proposes non-exchangeable conformal risk control for better uncertainty bounds.
problem Handling non-exchangeable data in black-box models for better risk control.
method Leverages and extends split conformal prediction and monotone loss function approaches.
result Allows controlling expected value of any monotone loss function for non-exchangeable data.
Since risky positions in multivariate portfolios can be offset by various choices of capital requirements that depend on the exchange rules and related transaction costs, it is natural to assume that the risk measures of random vectors are set-valued. Furthermore, it is reasonable to include the exchange rules in the a…
A blockchain replaces central counterparties with time-consuming consensus protocols to record the transfer of ownership. This settlement latency slows cross-exchange trading, exposing arbitrageurs to price risk. Off-chain settlement, instead, exposes arbitrageurs to costly default risk. We show with Bitcoin network an…
Modeling gas fee competition in decentralized exchanges to optimize arbitrage profits.
problem Gas fees and transaction ordering in decentralized exchanges create arbitrage opportunities.
method Developed a first equilibrium model of gas fee competition between two arbitrageurs under three transaction reversion settings.
result Mixed equilibria exist, and their characteristics depend on inventory risk and transaction settings.
In this article, we investigate whether exchange rate risk is priced. We use a multivariate GARCH-in-Mean specification and test alternative conditional international CAPM versions. Our results support strongly the international asset-pricing model that includes exchange rate risk for both developed and emerging stock …
This paper examines foreign exchange risk premia from simple univariate regressions to the state-space method. The adjusted traditional regressions properly figure out the existence and time-evolving property of the risk premia. Successively, the state-space estimations overall are quite rationally competent in examini…
The currency carry trade is the investment strategy that involves selling low interest rate currencies in order to purchase higher interest rate currencies, thus profiting from the interest rate differentials. This is a well known financial puzzle to explain, since assuming foreign exchange risk is uninhibited and the …
Agents prefer non-diversification in markets with extreme losses.
problem Optimal risk allocation and equilibria in markets with extremely heavy-tailed losses.
method Analysis of super-Pareto loss distributions and stochastic dominance.
result Non-diversification is preferred in markets with super-Pareto losses.
This study examines how market makers balance risk and impact in foreign exchange markets.
problem Balancing risk management with market impact in foreign exchange markets.
method An intermediate scenario approach considering both instantaneous and permanent market impact components.
result Transient market impact is more prevalent than previously thought, challenging traditional market impact models.
Uniswap analyzes liquidity provider risk and impermanent loss.
problem Risk and loss for liquidity providers in decentralized exchanges.
method Improved impermanent loss function for Uniswap v2, v3 comparison.
result Improved impermanent loss function for Uniswap v2.
Currency carry trade is the investment strategy that involves selling low interest rate currencies in order to purchase higher interest rate currencies, thus profiting from the interest rate differentials. This is a well known financial puzzle to explain, since assuming foreign exchange risk is uninhibited and the mark…
A new framework assesses liquidity risk in perpetual futures exchanges.
problem Measuring and predicting liquidation execution risk in perpetual futures markets.
method Slippage-at-Risk (SaR) framework, comprising three metrics: cross-sectional slippage quantile, expected slippage, and aggregate dollar-denominated tail slippage.
result SaR provides a forward-looking assessment of liquidation execution risk, predictive of systemic stress.
Currency volatility shocks predict lower excess returns, and buying weak transmitters outperforms selling strong ones.
problem Predicting currency returns using volatility shocks.
method Constructed a dynamic, directed network of volatility connections using option-implied volatilities.
result Currencies that transmit more volatility shocks earn lower excess returns.
Optimizes cryptocurrency exchanges' risk management by reducing positions based on leverage.
problem Managing risk in cryptocurrency futures exchanges during large price moves.
method Formulates ADL as an optimization problem to minimize risk of loss, using a water-filling rule to equalize leverage.
result The optimal ADL policy minimizes maximum leverage among participants, providing a transparent and implementable benchmark.
The article improves the display of acceptable exchange ratios for merging companies.
problem Determining feasible exchange ratios for merging companies.
method Exploits a diagrammatic approach to display the bargaining region.
result Shares face upper and lower bounds for acceptable exchange ratios.
A Python approach minimizes risk in decentralized exchanges.
problem Minimizing risk in decentralized exchanges.
method Three-step approach: Kernel Ridge Regression, function minimization, and algorithmic trick.
result Reduced computational load and increased solution accuracy.
Investigates how diversification preferences relate to risk attitudes.
problem Connecting diversification preferences to risk attitudes.
method Analyzes diversification preferences for various pairs of risks under different conditions.
result Diversification preferences for certain pairs of risks imply specific levels of risk aversion.
Study reveals risks of investing in new crypto-tokens in decentralized exchanges.
problem Risks associated with investing in newly created tokens in decentralized exchanges.
method Analysis of financial impact, market dynamics, profitability, and liquidity manipulations.
result Significant market liquidity trapped in honeypots, reducing market efficiency and misleading investors.
Investment strategy for NYSE stocks minimizes market correlation.
problem Minimizing market correlation for steady returns.
method Combining momentum, fundamentals, and analyst recommendations; feature selection; backtesting various portfolio construction methods.
result Risk parity outperformed other methods, offering higher Sharpe ratio and lower beta.
Study analyzes risks and opportunities in blockchain currency markets.
problem Characteristics of blockchain-based currency markets.
method Analysis of specific risks and opportunities, algorithm evaluation.
result Provides insights for high-frequency trading in these markets.
Revisits Jarrow & Turnbull model for credit and liquidity risk.
problem Modeling credit and liquidity risk in financial markets.
method Uses foreign exchange analogy and partially observable exchange rate.
result Derives tractable term structure models and explicit valuation formulae.
Intuitively, the default risk of a single borrower is higher when her or his assets and debt are denominated in different currencies. Additionally, the default dependence of borrowers with assets and debt in different currencies should be stronger than in the one-currency case. By combining well-known models by Merton …
The team predicts foreign exchange rates using clustering and attention models.
problem Complexity and unexpected events in foreign exchange markets.
method Clustering and attention models applied to historical data.
result Improved event-driven price prediction for oversold scenarios.
This paper investigates the impact of dark pools on price discovery (the efficiency of prices on stock exchanges to aggregate information). Assets are traded in either an exchange or a dark pool, with the dark pool offering better prices but lower execution rates. Informed traders receive noisy and heterogeneous signal…
Quantum computers can optimize foreign exchange reserves management.
problem Optimizing foreign exchange reserves management using quantum computing.
method Demonstrated through quantum Monte Carlo risk measurement and quantum algorithms for portfolio optimization.
result Quantum computers can theoretically optimize FX reserves management in the future.
We propose a model and an estimation technique to distinguish systemic risk and contagion in credit risk. The main idea is to assume, for a set of d obligors, a set of d idiosyncratic shocks and a shock that triggers the default of all them. All shocks are assumed to be linked by a dependence relationship, that in …
Study on efficiency in economies with risk-averse agents, finding Pareto optima.
problem Efficiency in economies with risk-averse agents.
method Analysis of utility functionals, existence and characterization of Pareto optima.
result Existence and comonotone characterization of Pareto optima for risk-averse agents.
This research categorizes AMM designs for secure token exchanges.
problem Designing AMMs for cryptoeconomic systems can lead to financial risks and inefficiencies.
method Developed an AMM taxonomy and proposed three archetypes.
result AMM archetypes meet key requirements for token issuance and exchange.
The conventional wisdom of mean-variance (MV) portfolio theory asserts that the nature of the relationship between risk and diversification is a decreasing asymptotic function, with the asymptote approximating the level of portfolio systematic risk or undiversifiable risk. This literature assumes that investors hold an…
Derivatives impact U.S. banking sector's systemic risk, but loan and leverage ratios are more significant.
problem Systemic risk in U.S. banking sector due to derivatives and loans.
method Analysis of derivatives and loan data to assess systemic risk.
result Loan and leverage ratios are more influential in systemic risk than derivatives holdings.
Simple agent based exchange models are a commonplace in the study of wealth distribution of artificial societies. Generally, each agent is characterized by its wealth and by a risk-aversion factor, and random exchanges between agents allow for a redistribution of the wealth. However, the detailed influence of the amoun…
Paper ranks stocks by compression risk, not volatility.
problem Investment risk not correlated with stock price volatility.
method Binary-ternary compressive coding of price change time series.
result Compression risk is a better indicator of stock investment risk.
The aim of this paper is to determine the Value at Risk (VaR) of the portfolio consisting of long positions in foreign currencies on an emerging market. Basing on empirical data we restrict ourselves to the case when the tail parts of distributions of logarithmic returns of these assets follow the power laws and the lo…
It is customary that when security prices fully reflect all available information, the markets for those securities are said to be efficient. And if markets are inefficient, investors can use available information ignored by the market to earn abnormally high returns on their investments. In this context this paper tri…
Study finds significant price declines and capital reallocation from centralized to decentralized exchanges after FTX collapse.
problem Quantifying trust dynamics and redistribution between centralized and decentralized exchanges.
method Interdisciplinary approach combining causal inference and computational text analysis.
result Significant price declines and capital reallocation from centralized to decentralized exchanges following the FTX collapse.
Investors can enhance their portfolios by strategically using LETFs, especially with dynamic strategies.
problem Unsuitability of passive or static approaches to LETFs leads to undesirable risk-return profiles.
method Demonstrated the effectiveness of simple dynamic strategies in exploiting favorable Omega ratio dynamics.
result Dynamic strategies can exploit the compounding effect of LETFs, improving risk-return profiles.
The paper develops diverse risk models for US stock portfolios.
problem Maximizing profits while minimizing risk in stock markets.
method Various high-dimensional risk models and investment strategies tested.
result Out-of-sample tests show improved portfolio performance.
An Entropic Dynamics of exchange rates is laid down to model the dynamics of foreign exchange rates, FX, and European Options on FX. The main objective is to represent an alternative framework to model dynamics. Entropic inference is an inductive inference framework equipped with proper tools to handle situations where…
This study optimizes trading and arbitrage in decentralized finance's CPMs, revealing convexity costs and developing efficient strategies.
problem Optimizing trading and arbitrage in decentralized finance's constant product markets (CPMs).
method Developed models for CPMs in competing centralised exchanges, CPMs, and both venues. Derived computationally efficient strategies.
result Accurately estimated convexity costs in CPMs, which are linear in trade size and nonlinear in liquidity depth and exchange rate.
Study collective pricing and hedging with admissible risk exchanges forming a finitely generated convex cone.
problem Collective pricing and hedging with exchanges forming a finitely generated convex cone.
method Extend collective First Fundamental Theorem of Asset Pricing and pricing-hedging duality.
result No collective arbitrage implies the closedness of the aggregate feasibility cone.
Study dynamic Pareto-optimal allocations in multi-period economies with time-consistent risk measures.
problem Optimal allocation in multi-period pure-exchange economies with stochastic endowments and time-consistent risk measures.
method Introduced dynamic Pareto-optimal allocation processes and derived recursive and comonotone improvement theorems.
result Dynamic Pareto-optimal allocation processes can be constructed recursively and are comonotone.