The sum of log-normal variates in geometric Brownian motion....
Geometric Brownian motion (GBM) is a key model for representing self-reproducing entities. Self-reproduction may be considered the definition of life [5], and the dynamics it induces are of interest to...
View ArticleImmediate Causality Network of Stock Markets. (arXiv:1802.02699v1 [q-fin.ST])
A financial system contains many elements networked by their relationships. Extensive works show that topological structure of the network stores rich information on evolutionary behaviors of the...
View ArticleVisualizing Treasury Issuance Strategy. (arXiv:1802.03376v1 [q-fin.PM])
We introduce simple cost and risk proxy metrics that can be attached to Treasury issuance strategy to complement analysis of the resulting portfolio weighted-average maturity (WAM). These metrics are...
View ArticleReplica Approach for Minimal Investment Risk with Cost. (arXiv:1802.03322v1...
In the present work, the optimal portfolio minimizing the investment risk with cost is discussed analytically, where this objective function is constructed in terms of two negative aspects of...
View ArticleExplicit size distributions of failure cascades redefine systemic risk on...
How big is the risk that a few initial failures of nodes in a network amplify to large cascades that span a substantial share of all nodes? Predicting the final cascade size is critical to ensure the...
View ArticleDeep Hedging. (arXiv:1802.03042v1 [q-fin.CP])
We present a framework for hedging a portfolio of derivatives in the presence of market frictions such as transaction costs, market impact, liquidity constraints or risk limits using modern deep...
View ArticleOptimization of Fire Sales and Borrowing in Systemic Risk....
This paper provides a framework for modeling financial contagion in a network subject to fire sales and price impacts, but allowing for firms to borrow to cover their shortfall as well. We consider...
View ArticleNew Proposals of a Stress Measure in a Capital and its Robust Estimator....
In this paper a novel approach for a measurement of stresses in a capital, which induce the capital flows between economic systems, is proposed. The proposals appeal to an apparatus offered by the...
View ArticleStructural Estimation of Behavioral Heterogeneity. (arXiv:1802.03735v1...
We develop a behavioral asset pricing model in which agents trade in a market with information friction. Profit-maximizing agents switch between trading strategies in response to dynamic market...
View ArticleDynamics of observables in rank-based models and performance of functionally...
In the seminal work [9], several macroscopic market observables have been introduced, in an attempt to find characteristics capturing the diversity of a financial market. Despite the crucial importance...
View ArticleParticle-without-Particle: a practical pseudospectral collocation method for...
Differential equations with distributional sources---in particular, involving delta distributions and/or derivatives thereof---have become increasingly ubiquitous in numerous areas of physics and...
View ArticleThe Quotient of Normal Random Variables And Application to Asset Price Fat...
The quotient of random variables with normal distributions is examined and proven to have have power law decay, with density $f\left( x\right) \simeq f_{0}x^{-2}$, with the coefficient depending on the...
View ArticleAsset Price Volatility and Price Extrema. (arXiv:1802.04774v1 [q-fin.MF])
The relationship between price volatilty and a market extremum is examined using a fundamental economics model of supply and demand. By examining randomness through a microeconomic setting, we obtain...
View ArticleWhat is the Sharpe Ratio, and how can everyone get it wrong?....
The Sharpe ratio is the most widely used risk metric in the quantitative finance community - amazingly, essentially everyone gets it wrong. In this note, we will make a quixotic effort to rectify the...
View ArticleStock Market Visualization. (arXiv:1802.05264v1 [q-fin.PM])
We provide complete source code for a front-end GUI and its back-end counterpart for a stock market visualization tool. It is built based on the "functional visualization" concept we discuss, whereby...
View ArticleStructural changes in the interbank market across the financial crisis from...
Interbank markets are often characterised in terms of a core-periphery network structure, with a highly interconnected core of banks holding the market together, and a periphery of banks connected...
View ArticleMultilevel nested simulation for efficient risk estimation....
We investigate the problem of computing a nested expectation of the form $\mathbb{P}[\mathbb{E}[X|Y] \!\geq\!0]\!=\!\mathbb{E}[\textrm{H}(\mathbb{E}[X|Y])]$ where $\textrm{H}$ is the Heaviside...
View ArticleAdapting the CVA model to Leland's framework. (arXiv:1802.04837v1 [q-fin.MF])
We consider the framework proposed by Burgard and Kjaer (2011) that derives the PDE which governs the price of an option including bilateral counterparty risk and funding. We extend this work by...
View ArticleOn the binomial approximation of the American put. (arXiv:1802.05614v1...
We consider the binomial approximation of the American put price in the Black-Scholes model (with continuous dividend yield). Our main result is that the error of approximation is O((ln n) $\alpha$ /n)...
View ArticleAn Operational (Preasymptotic) Measure of Fat-tailedness. (arXiv:1802.05495v1...
This note presents an operational measure of fat-tailedness for univariate probability distributions, in $[0,1]$ where 0 is maximally thin-tailed (Gaussian) and 1 is maximally fat-tailed. read more...
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