New method identifies uncertainty shocks in financial markets using revised VIX.
problem Traditional VIX fails to capture non-Gaussian, heavy-tailed asset returns.
method Fit a double-subordinated Normal Inverse Gaussian Levy process to S&P 500 option prices to construct a revised VIX.
result Revised VIX provides a more comprehensive measure of volatility reflecting extreme movements and heavy tails.
Geopolitical and geoeconomic shocks affect sovereign risk differently, with distinct transmission channels.
problem Understanding how geopolitical and geoeconomic shocks impact sovereign credit risk.
method Daily panel data of 42 economies over 2018-2025; semistructural framework; Shapley-Taylor decomposition; machine learning predictions; placebo and sign-restricted SVAR evidence.
result Geopolitical shocks primarily increase sovereign credit spreads through direct repricing, while geoeconomic shocks mainly affect spreads through financial conditions and policy uncertainty.
Study recovers investor preferences from portfolio data using synthetic data and robust optimization.
problem Recovering latent investor preferences from observed portfolio allocations under uncertainty.
method Inverse portfolio optimization framework integrating robust optimization and regret-based inference.
result Accurate recovery of transaction cost parameters and partial identifiability of ESG penalties under preference misspecification and market shocks.
Regulator allocates buffers to prevent financial contagion in networks with common assets.
problem Containment of default contagion in financial networks with common asset exposures.
method Allocates nonnegative buffer vectors under linear budget constraints to maximize default or insolvency resilience margins or minimize worst-case systemic losses.
result Exact synthesis results for buffer allocation under ℓ∞ and ℓ1 uncertainty sets, showing significant gains over uniform and exposure-proportional allocations. This study shows how trade policy uncertainty affects stock-T bill correlations.
problem The impact of trade policy uncertainty on stock-T bill relationships.
method Extended Dynamic Conditional Correlation (DCC) framework incorporating exogenous variables.
result Trade policy uncertainty significantly alters stock-T bill correlations, especially under specific political conditions.
We derive the optimal investment decision in a project where both demand and investment costs are stochastic processes, eventually subject to shocks. We extend the approach used in Dixit and Pindyck (1994), chapter 6.5, to deal with two sources of uncertainty, but assuming that the underlying processes are no longer ge…
How, and to what extent, does an interconnected financial system endogenously amplify external shocks? This paper attempts to reconcile some apparently different views emerged after the 2008 crisis regarding the nature and the relevance of contagion in financial networks. We develop a common framework encompassing seve…
Physics-constrained GP predicts material states under shockwave conditions.
problem Predicting material states under extreme shockwave conditions.
method Physics-constrained Gaussian Process regression with Rankine-Hugoniot constraints.
result Reproduces Hugoniot curves with satisfactory accuracy and uncertainty quantification.
We analyze total, asymmetric and frequency connectedness between oil and forex markets using high-frequency, intra-day data over the period 2007 -- 2017. By employing variance decompositions and their spectral representation in combination with realized semivariances to account for asymmetric and frequency connectednes…
This work develops a machine learning approach to EOS models that accounts for thermodynamic constraints and model uncertainty.
problem Developing accurate equation of state models for high energy-density experiments with inherent uncertainties.
method Physics-informed Gaussian process regression (GPR) framework to capture model uncertainty and thermodynamic constraints.
result The proposed framework reduces prediction uncertainty by incorporating thermodynamic constraints, as demonstrated for diamond carbon EOS.
Paper uses non-linear dimension reduction for better economic forecasting.
problem Analyzing economic effects of shocks in large datasets.
method Non-linear dimension reduction in factor-augmented vector autoregressions.
result Non-linear dimension reduction techniques improve forecasting, especially in volatile data.
This work proposes an augmented variant of DebtRank with uncertainty intervals as a method to investigate and assess systemic risk in financial networks, in a context of incomplete data. The algorithm is tested against a default contagion algorithm on three ensembles of networks with increasing density, estimated from …
The study reveals asymmetries in US financial shocks' international impacts.
problem Analyzing nonlinearities in international financial spillovers.
method Developed a flexible nonlinear multi-country model to capture asymmetries in responses to financial shocks.
result Adverse shocks trigger stronger declines in output, inflation, and stock markets than benign shocks.
Cryptocurrency markets show similar returns but different volatility responses to infrastructure and regulatory shocks.
problem Understanding how cryptocurrency markets differentiate between infrastructure and regulatory shocks.
method Event-level block bootstrap inference on 31 cryptocurrency events across Bitcoin, Ethereum, Solana, and Cardano (2019-2025).
result No statistically significant difference in cumulative abnormal returns between infrastructure failures and regulatory enforcement.
Study shows local governments smooth fiscal shocks from property tax revenues.
problem Impact of revenue shocks on local fiscal policy.
method Causal machine learning strategies and post-double-selection LASSO estimator.
result Local policymakers predominantly smooth fiscal shocks, but react differently to positive and negative shocks.
Study shows COVID-19 cases increase stock market volatility in Pakistan.
problem Impact of COVID-19 on stock market volatility in Pakistan.
method Used vector autoregressive (VAR) model to analyze data from February 25, 2020 to December 7, 2020.
result A shock to total daily coronavirus cases in Pakistan leads to a significant increase in stock market volatility.
In this paper we study the distributional properties of a vector of lifetimes in which each lifetime is modeled as the first arrival time between an idiosyncratic shock and a common systemic shock. Despite unlike the classical multidimensional Marshall-Olkin model here only a unique common shock affecting all the lifet…
The study uses Random Matrix Theory to identify structural changes in stock markets during shocks.
problem Understanding structural changes in stock markets during exogenous shocks.
method Random Matrix Theory and complexity gap analysis.
result The complexity gap collapses during shocks, indicating strong synchronization, and widens before shocks, signaling a rich structure.
We have analyzed the Indices of Industrial Production (Seasonal Adjustment Index) for a long period of 240 months (January 1988 to December 2007) to develop a deeper understanding of the economic shocks. The angular frequencies estimated using the Hilbert transformation, are almost identical for the 16 industrial secto…
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.
We empirically test the effects of unanticipated fiscal policy shocks on the growth rate and the cyclical component of real private output and reveal different types of asymmetries in fiscal policy implementation. The data used are quarterly U.S. observati ons over the period 1967:1 to 2011:4. In doing so, we use both …
New method quantifies market shocks and their effects.
problem Quantifying the impact and response to market shocks.
method Sparse probabilistic elliptical model with L0-norm regularization. result Shock patterns are related to network structure and sector diversification.
Paper addresses unbalanced data in common shock models for loss reserving.
problem Complications in capturing structural dependence with unbalanced data.
method Introduces a common shock Tweedie approach for unbalanced data.
result Better balance of common shock proportions and parsimonious solution.
This study assesses how economic shocks affect the efficiency and robustness of international pesticide trade networks.
problem Economic shocks impact the efficiency and robustness of international pesticide trade networks.
method Simulations were used to quantify efficiency and robustness under different economic shocks. Three strategies were tested: descending, random, and ascending node removal.
result The international pesticide trade networks became more efficient and robust except for clustering coefficient. Import-oriented economies were more vulnerable to shocks.
This paper investigates how economic shocks propagate and amplify through the input-output network connecting industrial sectors in developed economies. We study alternative models of diffusion on networks and we calibrate them using input-output data on real-world inter-sectoral dependencies for several European count…
This paper measures financial market resilience in China and identifies key uncertainties.
problem Measuring financial market resilience in China.
method Quantitative analysis of total financial market and sub-markets, Diebold-Yilmaz connectedness approach.
result Financial market resilience in China is event-driven and influenced by geopolitical risks, economic and trade policy uncertainty, and U.S.-China tensions.
This paper analyzes how banking risks spread through sentiment and policy shocks.
problem Systemic risk in the U.S. banking system during the 2023 crisis.
method Time-Varying Parameter Vector Autoregression (TVP-VAR) model with 30-day rolling windows.
result Risk spillovers were driven by perceived similarities in bank business models under interest rate pressure.
New approach measures systemic risk by absorbing shocks before financial systems deteriorate.
problem Systemic risk evaluation without considering initial shocks.
method Linearized DebtRank and spectral graph theory for localized and uniform shocks; Monte Carlo simulations for heterogeneous shocks.
result Explicit computation and clear visualization of financial distress onset.
Mathematical framework investigates fire sales amplification and stability.
problem Market instability caused by fire sales amplification.
method Developed a mathematical framework to investigate system characteristics and resilience.
result Characterized systems resilient to small shocks for financial stability assessment.
Using a modified damped harmonic oscillator model equivalent to a model of market dynamics with price expectations, we analyze the reaction of financial markets to shocks. In order to do this, we gather data from indices of a variety of financial markets for the 1987 Black Monday, the Russian crisis of 1998, the crash …
Finance is about how the continuous stream of news gets incorporated into prices. But not all news have the same impact. Can one distinguish the effects of the Sept. 11, 2001 attack or of the coup against Gorbachev on Aug., 19, 1991 from financial crashes such as Oct. 1987 as well as smaller volatility bursts? Using a …
Oil markets profoundly influence world economies through determination of prices of energy and transports. Using novel methodology devised in frequency domain, we study the information transmission mechanisms in oil-based commodity markets. Taking crude oil as a supply-side benchmark and heating oil and gasoline as dem…
We reverse engineer dynamics of financial contagion to find the scenario of smallest exogenous shock that, should it occur, would lead to a given final systemic loss. This reverse stress test can be used to identify the potential triggers of systemic events, and it removes the arbitrariness in the selection of shock sc…
Study models stock price recovery during COVID-19, distinguishing V and L-shape recoveries.
problem Analyzing stock price recovery during the COVID-19 pandemic.
method Developed a stock price model based on net-fund-flow and financial antifragility.
result Quality stocks with higher financial antifragility show V-shape recovery, while those with lower antifragility show L-shape recovery.
Optimal dynamic allocation of carbon allowances reduces emissions efficiently.
problem Reducing carbon emissions from firms over time with dynamic allocation and trading.
method Variational approach to solve the Stackelberg game between regulator and firms.
result Optimal policies lead to constant abatement effort and allowance price, outperforming static allocations.
Stress shocks are often calculated as multiples of the standard deviation of a history set. This paper investigates how many standard deviations are required to guarantee that this shock exceeds any observation within the history set, given the additional constraint of kurtosis. The results of this analysis are then us…
We establish a simple relation between curvatures of the group of volume-preserving diffeomorphisms and the lifespan of potential solutions to the inviscid Burgers equation before the appearance of shocks. We show that shock formation corresponds to a focal point of the group of volume-preserving diffeomorphisms regard…
We investigate shock-wave solutions of the Einstein equations in the case when the speed of propagation is equal to the speed of light. The work extends the shock matching theory of Smoller and Temple, which characterizes solutions of the Einstein equations when the spacetime metric is only Lipschitz continuous across …
Universal model for soft tissue mechanics under shock waves.
problem Modeling shock wave mechanics in soft biological tissues.
method Continuum mixture theory with phase-field mechanics.
result Universal thermodynamically consistent formulation for soft porous tissues.
Study historical cholera epidemics and simulate long-term mortality impacts.
problem Long-term impacts of mortality shocks on longevity.
method Historical analysis of cholera epidemics and mathematical modeling of stochastic Individual-Based models.
result Simulated long-term mortality impacts following a mortality shock.
Network models assume unrealistic idiosyncratic risk, which can be mitigated by allowing for correlated shocks.
problem Network models assume idiosyncratic risk, which can be unrealistic and lead to incorrect predictions.
method Proposed a production-based asset pricing model to account for substitutability between trade partners and correlation in supply and demand shocks.
result Assets positively exposed to average propagation of upstream and downstream shocks earn lower average risk premia.
Study examines oil and US stock market interactions during coronavirus crisis.
problem Understanding the impact of coronavirus on oil and stock markets.
method Wavelet analysis of daily data from February 18, 2020 to August 15, 2020.
result Oil prices lead US stock prices at 3-5-day cycles during the first and second parts of March and April 2020.
Study optimal reinsurance and investment strategies under common shocks affecting financial and actuarial markets.
problem Maximizing expected exponential utility of terminal wealth in a company facing both ordinary and catastrophic claims.
method Modeling common shocks affecting financial and actuarial markets, using stochastic control and Hamilton-Jacobi-Bellman equations.
result Characterization of optimal reinsurance and investment strategies under common shock dependence.
This paper combines and develops the models in Lastrapes (2002) and Mankiw & Weil (1989), which enables us to analyze the effects of interest rate and population growth shocks on housing price in one integrated framework. Based on this model, we carry out policy simulations to examine whether the housing (stock or flow…
The paper analyzes optimal timing for converting wealth into annuities in the presence of a mortality shock.
problem Optimal timing for converting retirement wealth into annuities under a mortality risk.
method Derives explicit closed-form solutions for value function and optimal stopping boundaries.
result The optimal strategy depends on the interplay between annuity attractiveness, investment returns, and bequest motives.
We study the cascading dynamics immediately before and immediately after 219 market shocks. We define the time of a market shock T_{c} to be the time for which the market volatility V(T_{c}) has a peak that exceeds a predetermined threshold. The cascade of high volatility "aftershocks" triggered by the "main shock" is …
Modeling financial contagion through bank networks, revealing solvency correlations.
problem Understanding how financial shocks propagate through interconnected banks.
method Simulated financial network of 100 banks, randomly generated with varying link probabilities, and shocks applied to 15 banks.
result Ranges of probability values and banks' solvency are positively correlated.
Systems with long-range persistence and memory are shown to exhibit different precursory as well as recovery patterns in response to shocks of exogeneous versus endogeneous origins. By endogeneous, we envision either fluctuations resulting from an underlying chaotic dynamics or from a stochastic forcing origin which ma…