-
GPT's idea of stock factors Quantitative Finance (IF 1.3) Pub Date : 2024-03-05 Yuhan Cheng, Ke Tang
We amalgamate the capabilities of the GPT-4 computational model with the avant-garde methodology of autonomous factor generation, culminating in the synthesis of high-return factors within the equi...
-
A static replication approach for callable interest rate derivatives: mathematical foundations and efficient estimation of SIMM–MVA Quantitative Finance (IF 1.3) Pub Date : 2024-02-26 J. H. Hoencamp, S. Jain, B. D. Kandhai
The computation of credit risk measures such as exposure and Credit Value Adjustments (CVA) requires the simulation of future portfolio prices. Recent metrics, such as dynamic Initial Margin (IM) a...
-
Monte-Carlo Methods and Stochastic Processes: From Linear to Non-Linear Quantitative Finance (IF 1.3) Pub Date : 2024-02-21 Aurélien Alfonsi, Stefano De Marco
Published in Quantitative Finance (Ahead of Print, 2024)
-
On the impact of feeding cost risk in aquaculture valuation and decision making Quantitative Finance (IF 1.3) Pub Date : 2024-02-14 Christian Oliver Ewald, Kevin Kamm
We study the effect of stochastic feeding costs on animal-based commodities with particular focus on aquaculture. More specifically, we use soybean futures to infer on the stochastic behavior of sa...
-
Fin-GAN: forecasting and classifying financial time series via generative adversarial networks Quantitative Finance (IF 1.3) Pub Date : 2024-02-13 Milena Vuletić, Felix Prenzel, Mihai Cucuringu
We investigate the use of Generative Adversarial Networks (GANs) for probabilistic forecasting of financial time series. To this end, we introduce a novel economics-driven loss function for the gen...
-
Handbook of Price Impact Modeling Quantitative Finance (IF 1.3) Pub Date : 2024-02-13 Johannes Muhle-Karbe
Published in Quantitative Finance (Vol. 24, No. 2, 2024)
-
Physics-informed convolutional transformer for predicting volatility surface Quantitative Finance (IF 1.3) Pub Date : 2024-02-13 Soohan Kim, Seok-Bae Yun, Hyeong-Ohk Bae, Muhyun Lee, Youngjoon Hong
Predicting volatility is important for asset predicting, option pricing and hedging strategies because it cannot be directly observed in the financial market. The dynamics of the volatility surface...
-
Deep impulse control: application to interest rate intervention Quantitative Finance (IF 1.3) Pub Date : 2024-02-13 Bowen Jia, Hoi Ying Wong
We propose a deep learning framework for impulse control problems involving multivariate stochastic processes, which can be controllable or uncontrollable. We use this framework to estimate central...
-
Risk sharing with deep neural networks Quantitative Finance (IF 1.3) Pub Date : 2024-02-13 M. Burzoni, A. Doldi, E. Monzio Compagnoni
We consider the problem of optimally sharing a financial position among agents with potentially different reference risk measures. The problem is equivalent to computing the infimal convolution of ...
-
Optimal stop-loss rules in markets with long-range dependence Quantitative Finance (IF 1.3) Pub Date : 2024-02-13 Yun Xiang, Shijie Deng
Stop-loss is a common risk management tool for limiting risks and improving trading strategy performance. The effectiveness of stop-loss depends critically on asset price characteristics. This stud...
-
A unified formula of the optimal portfolio for piecewise hyperbolic absolute risk aversion utilities Quantitative Finance (IF 1.3) Pub Date : 2024-02-13 Zongxia Liang, Yang Liu, Ming Ma, Rahul Pothi Vinoth
We propose a general family of piecewise hyperbolic absolute risk aversion (PHARA) utilities, including many classic and non-standard utilities as examples. A typical application is the composition...
-
Dynamic currency hedging with non-Gaussianity and ambiguity Quantitative Finance (IF 1.3) Pub Date : 2024-02-13 Paweł Polak, Urban Ulrych
This paper introduces a non-Gaussian dynamic currency hedging strategy for globally diversified investors with ambiguity. It provides theoretical and empirical evidence that, under the stylized fac...
-
A generalization of the rational rough Heston approximation Quantitative Finance (IF 1.3) Pub Date : 2024-02-13 Jim Gatheral, Radoš Radoičić
Previously, in Gatheral and Radoičić (Rational approximation of the rough Heston solution. Int. J. Theor. Appl. Finance, 2019, 22(3), 1950010), we derived a rational approximation of the solution o...
-
On the optimal forecast with the fractional Brownian motion Quantitative Finance (IF 1.3) Pub Date : 2024-02-13 Xiaohu Wang, Jun Yu, Chen Zhang
This paper investigates the performance of different forecasting formulas with fractional Brownian motion based on discrete and finite samples. Existing literature presents two formulas for generat...
-
On the pricing of capped volatility swaps using machine learning techniques Quantitative Finance (IF 1.3) Pub Date : 2024-02-06 Stephan Höcht, Wim Schoutens, Eva Verschueren
A capped volatility swap is a forward contract on an asset's capped, annualized, realized volatility, over a predetermined period of time. This paper presents data-driven machine learning technique...
-
When is cross impact relevant? Quantitative Finance (IF 1.3) Pub Date : 2024-02-06 Victor Le Coz, Iacopo Mastromatteo, Damien Challet, Michael Benzaquen
Trading pressure from one asset can move the price of another, a phenomenon referred to as cross impact. Using tick-by-tick data spanning 5 years for 500 assets listed in the United States, we iden...
-
Implied roughness in the term structure of oil market volatility Quantitative Finance (IF 1.3) Pub Date : 2024-01-31 Mesias Alfeus, Christina S. Nikitopoulos, Ludger Overbeck
This paper analyses the attributes and the significance of the roughness of oil market volatility. We employ unspanned stochastic volatility models driven by rough Brownian motions that yield semi-...
-
Book review Quantitative Finance (IF 1.3) Pub Date : 2024-01-30 Mark Podolskij
Published in Quantitative Finance (Vol. 24, No. 1, 2024)
-
An early indicator for anomalous stock market performance Quantitative Finance (IF 1.3) Pub Date : 2024-01-30 Marlon Fritz, Thomas Gries, Lukas Wiechers
We propose an indicator for detecting anomalous stock market valuation in real time such that market participants receive timely signals so as to be able to take stabilizing action. Unlike existing...
-
Deep attentive survival analysis in limit order books: estimating fill probabilities with convolutional-transformers Quantitative Finance (IF 1.3) Pub Date : 2024-01-30 Álvaro Arroyo, Álvaro Cartea, Fernando Moreno-Pino, Stefan Zohren
One of the key decisions in execution strategies is the choice between a passive (liquidity providing) or an aggressive (liquidity taking) order to execute a trade in a limit order book (LOB). Esse...
-
Regime-switching affine term structures Quantitative Finance (IF 1.3) Pub Date : 2024-01-30 Andreas Celary, Zehra Eksi-Altay, Paul Krühner
We consider an HJM model setting for Markov-chain modulated forward rates. The underlying Markov chain is assumed to induce regime switches on the forward curve dynamics. Our primary focus is on th...
-
On parametric optimal execution and machine learning surrogates Quantitative Finance (IF 1.3) Pub Date : 2024-01-30 Tao Chen, Mike Ludkovski, Moritz Voß
We investigate optimal order execution problems in discrete time with instantaneous price impact and stochastic resilience. First, in the setting of linear transient price impact we derive a closed...
-
Adaptive online mean-variance portfolio selection with transaction costs Quantitative Finance (IF 1.3) Pub Date : 2024-01-30 Sini Guo, Jia-Wen Gu, Wai-Ki Ching, Benmeng Lyu
Online portfolio selection is attracting increasing attention in both artificial intelligence and finance communities due to its efficiency and practicability in deriving optimal investment strateg...
-
Centred expected shortfall (CES): a traditional asset manager’s view on decomposing downside investment risk Quantitative Finance (IF 1.3) Pub Date : 2024-01-30 Erik Kroon, Mehdi-Vincent Hacini, Koye Somefun
Risk driver contributions are key to understanding portfolio risk. Often, this is done by decomposing portfolio volatility. This is problematic in the presence of non-elliptical distributions. Some...
-
Bubbles and dependence between international equity markets Quantitative Finance (IF 1.3) Pub Date : 2024-01-30 Wuyi Ye, Lingbo Gao, Xiaoquan Liu
In this study, we develop a copula-based Markov regime-switching model using information contained in asset price bubbles to explore the dynamic dependence between international equity markets. Thi...
-
A model of dynamic information production for initial public offerings Quantitative Finance (IF 1.3) Pub Date : 2024-01-30 Rafiqul Bhuyan, Coşkun Çetin, Burhaneddin İzgi, Bakhtear Talukdar
We develop a multi-period information-theoretic model of initial public offering (IPO) in the presence of an adverse selection problem that addresses both underpricing in an IPO and subsequent unde...
-
Quantum-inspired variational algorithms for partial differential equations: application to financial derivative pricing Quantitative Finance (IF 1.3) Pub Date : 2024-01-30 Tianchen Zhao, Chuhao Sun, Asaf Cohen, James Stokes, Shravan Veerapaneni
Variational quantum Monte Carlo (VMC) combined with neural-network quantum states offers a novel angle of attack on the curse-of-dimensionality encountered in a particular class of partial differen...
-
Estimating correlations among elliptically distributed random variables under any form of heteroskedasticity Quantitative Finance (IF 1.3) Pub Date : 2024-01-04 Matteo Pelagatti, Giacomo Sbrana
The paper introduces a semiparametric estimator of the correlations among elliptically distributed random variables invariant to any form of heteroscedasticity, robust to outliers, and asymptotical...
-
Functional quantization of rough volatility and applications to volatility derivatives Quantitative Finance (IF 1.3) Pub Date : 2023-12-20 O. Bonesini, G. Callegaro, A. Jacquier
We develop a product functional quantization of rough volatility. Since the optimal quantizers can be computed offline, this new technique, built on the insightful works by [Luschgy, H. and Pagès, ...
-
Machine Learning and Data Sciences for Financial Markets: A Guide to Contemporary Practices Quantitative Finance (IF 1.3) Pub Date : 2023-12-20 Damir Filipovic
Published in Quantitative Finance (Vol. 23, No. 12, 2023)
-
Rule-based trading on an order-driven exchange: a reassessment Quantitative Finance (IF 1.3) Pub Date : 2023-12-20 Alan G. Isaac, Vasudeva Ramaswamy
A core research area of computational behavioral finance investigates emergent price dynamics when heterogeneous traders follow a mix of rule-based strategies and interact indirectly through a limi...
-
Cryptocurrency factor momentum Quantitative Finance (IF 1.3) Pub Date : 2023-12-20 Christian Fieberg, Gerrit Liedtke, Daniel Metko, Adam Zaremba
Is there a momentum effect in cryptocurrency anomalies? To answer this, we analyze data from over 3900 coins spanning the years 2014 to 2022 and replicate 34 anomalies in the cross-section of crypt...
-
Effective stochastic local volatility models Quantitative Finance (IF 1.3) Pub Date : 2023-12-20 M. Felpel, J. Kienitz, T.A. McWalter
If a high degree of accuracy and market consistency is required for option pricing, stochastic local volatility models are often the approach of choice. When calibrating these types of models, one ...
-
Principled pasting: attaching tails to risk-neutral probability density functions recovered from option prices Quantitative Finance (IF 1.3) Pub Date : 2023-12-20 Thomas R. Bollinger, William R. Melick, Charles P. Thomas
The popular ‘curve-fitting’ method of using option prices to construct an underlying asset's risk neutral probability density function (RND) first recovers the interior of the density and then atta...
-
A basket half full: sparse portfolios Quantitative Finance (IF 1.3) Pub Date : 2023-12-20 Ekaterina Seregina
The existing approaches to sparse wealth allocations (1) are limited to low-dimensional setup when the number of assets is less than the sample size; (2) lack theoretical analysis of sparse wealth ...
-
Mind the cap!—constrained portfolio optimisation in Heston's stochastic volatility model Quantitative Finance (IF 1.3) Pub Date : 2023-12-20 M. Escobar-Anel, M. Kschonnek, R. Zagst
We consider a portfolio optimisation problem for a utility-maximising investor who faces convex constraints on his portfolio allocation in Heston's stochastic volatility model. We apply existing du...
-
Dynamic core-satellite investing using higher order moments: an explicit solution Quantitative Finance (IF 1.3) Pub Date : 2023-12-20 Yanfeng Wang, Wanbo Lu, Kris Boudt
The goal of core-satellite investing is to optimally balance the portfolio allocation between a core and satellite investment. This paper provides an explicit solution when the investor's optimalit...
-
Smiles in delta Quantitative Finance (IF 1.3) Pub Date : 2023-12-20 Arianna Mingone
Fukasawa introduced in Fukasawa [The normalizing transformation of the implied volatility smile. Math. Finance, 2012, 22(4), 753–762] two necessary conditions for no butterfly arbitrage on a given ...
-
The Politics of Financial Control: The Role of the House of Commons Quantitative Finance (IF 1.3) Pub Date : 2023-12-01 Teguh Ahmad Asparill, Rossy Lambelanova, Andi Pitono
Published in Quantitative Finance (Ahead of Print, 2023)
-
Household financial health: a machine learning approach for data-driven diagnosis and prescription Quantitative Finance (IF 1.3) Pub Date : 2023-11-07 Kyeongbin Kim, Yoontae Hwang, Dongcheol Lim, Suhyeon Kim, Junghye Lee, Yongjae Lee
Household finances are being threatened by unprecedented social and economic upheavals, including an aging society and slow economic growth. Numerous researchers and practitioners have provided gui...
-
How does price (in)efficiency influence cryptocurrency portfolios performance? The role of multifractality Quantitative Finance (IF 1.3) Pub Date : 2023-11-07 Eduardo Amorim Vilela de Salis, Leandro dos Santos Maciel
This paper proposes a new investment strategy in the cryptocurrency market based on a two-step procedure. The first step is the computation of the asset's levels of efficiency in an universe of cry...
-
A transform-based method for pricing Asian options under general two-dimensional models Quantitative Finance (IF 1.3) Pub Date : 2023-11-07 Weinan Zhang, Pingping Zeng
We propose a unified transform-based method, which we call the extended double spiral (EDS) method, for pricing arithmetic Asian options under general two-dimensional (2D) models that nest regime-s...
-
Can volatility solve the naive portfolio puzzle? Quantitative Finance (IF 1.3) Pub Date : 2023-11-07 Michael Curran, Patrick O'Sullivan, Ryan Zalla
We investigate whether sophisticated volatility estimation improves the out-of-sample performance of mean-variance portfolio strategies relative to the naive 1/N strategy. The portfolio strategies ...
-
On prices and returns in commercial prediction markets Quantitative Finance (IF 1.3) Pub Date : 2023-11-07 Karl Whelan
The Commodity Futures Trading Commission (CFTC) has recently licensed a commercial prediction market to operate in the US. With regulatory restrictions lifted, these markets can now play the import...
-
Optimal portfolio choice of couples with tax-deferred accounts and survival-contingent products Quantitative Finance (IF 1.3) Pub Date : 2023-11-07 Sanghyeon Bae, Yongjae Lee, Woo Chang Kim
Financial products for retirement planning generally have complex taxation structures and death conditions. In particular, tax-deferred accounts (TDAs) can provide tax-sheltered wealth accumulation...
-
A multi-curve HJM factor model for pricing and risk management Quantitative Finance (IF 1.3) Pub Date : 2023-11-07 Tobias Bienek, Griselda Deelstra, Andreas Lichtenstern, Rudi Zagst
In this paper, we introduce a multi-curve model under the historical probability based upon multiplicative relative spreads, inspired by the HJM and affine factor approaches, which implies positive...
-
Islamic Banking and Finance, Second Edition Quantitative Finance (IF 1.3) Pub Date : 2023-11-03 Muhammad Ash-Shiddiqy, Mujtahid, Khamim
Published in Quantitative Finance (Ahead of Print, 2023)
-
Bayesian nonparametric portfolio selection with rolling maximum drawdown control Quantitative Finance (IF 1.3) Pub Date : 2023-09-10 Xiaoling Mei, Yachong Wang, Weixuan Zhu
We present a novel approach to the portfolio selection problem for a multiperiod investor facing multiple risky assets, trading constraints, and return predictability. Our objective is to maximize mean-variance utility while addressing the computational challenges arising from the curse of dimensionality associated with dynamic programming in the presence of trading constraints. To overcome this, we
-
Book review Quantitative Finance (IF 1.3) Pub Date : 2023-09-08 Vladimir V. Piterbarg
Published in Quantitative Finance (Vol. 23, No. 10, 2023)
-
Deep reinforcement learning for option pricing and hedging under dynamic expectile risk measures Quantitative Finance (IF 1.3) Pub Date : 2023-09-05 Saeed Marzban, Erick Delage, Jonathan Yu-Meng Li
Recently equal risk pricing, a framework for fair derivative pricing, was extended to consider dynamic risk measures. However, all current implementations either employ a static risk measure that v...
-
Technical analysis as a sentiment barometer and the cross-section of stock returns Quantitative Finance (IF 1.3) Pub Date : 2023-09-01 Wenjie Ding, Khelifa Mazouz, Owain ap Gwilym, Qingwei Wang
This paper explores an unexamined sentiment channel through which technical analysis can add value. We use a spectrum of technical trading strategies to build a daily market sentiment indicator tha...
-
Cross-impact of order flow imbalance in equity markets Quantitative Finance (IF 1.3) Pub Date : 2023-08-17 Rama Cont, Mihai Cucuringu, Chao Zhang
We investigate the impact of order flow imbalance (OFI) on price movements in equity markets in a multi-asset setting. First, we propose a systematic approach for combining OFIs at the top levels of the limit order book into an integrated OFI variable which better explains price impact, compared to the best-level OFI. We show that once the information from multiple levels is integrated into OFI, multi-asset
-
Model-free analysis of real option exercise probability and timing Quantitative Finance (IF 1.3) Pub Date : 2023-08-17 Sang Baum Kang, Pascal Létourneau
This paper investigates the effects of modifying a real option's characteristics on its holding value and optimal exercise decision using quantile-preserving spreads and stochastic dominance. We sh...
-
Distributionally robust end-to-end portfolio construction Quantitative Finance (IF 1.3) Pub Date : 2023-08-08 Giorgio Costa, Garud N. Iyengar
We propose an end-to-end distributionally robust system for portfolio construction that integrates the asset return prediction model with a distributionally robust portfolio optimization model. We also show how to learn the risk-tolerance parameter and the degree of robustness directly from data. End-to-end systems have an advantage in that information can be communicated between the prediction and
-
High-dimensional sparse index tracking based on a multi-step convex optimization approach Quantitative Finance (IF 1.3) Pub Date : 2023-08-02 Fangquan Shi, Lianjie Shu, Yiling Luo, Xiaoming Huo
Both convex and non-convex penalties have been widely proposed to tackle the sparse index tracking problem. Owing to their good property of generating sparse solutions, penalties based on the least absolute shrinkage and selection operator (LASSO) and its variations are often suggested in the stream of convex penalties. However, the LASSO-type penalty is often shown to have poor out-of-sample performance
-
Multivariate systemic risk measures and computation by deep learning algorithms Quantitative Finance (IF 1.3) Pub Date : 2023-07-26 A. Doldi, Y. Feng, J.-P. Fouque, M. Frittelli
In this work, we propose deep learning-based algorithms for the computation of systemic shortfall risk measures defined via multivariate utility functions. We discuss the key related theoretical aspects, with a particular focus on the fairness properties of primal optima and associated risk allocations. The algorithms we provide allow for learning primal optimizers, optima for the dual representation
-
A cost-sensitive ensemble deep forest approach for extremely imbalanced credit fraud detection Quantitative Finance (IF 1.3) Pub Date : 2023-07-26 Fang Zhao, Gang Li, Yanxia Lyu, Hongdong Ma, Xiaoqian Zhu
Credit fraud detection modeling helps prevent default risks and reduce economic losses, and increasingly sophisticated methods have been designed for predicting the default probability of clients. ...
-
The role of fleeting orders on option expiration days Quantitative Finance (IF 1.3) Pub Date : 2023-07-25 Antonio Figueiredo, Pankaj Jain, Suchismita Mishra
We employ NASDAQ order level data to analyze intraday trading at option expirations and cross-market price pressure spillover. We observe more fleeting orders in optionable stocks on option expiration versus non-expiration days. The relation between NBBO proximity to strike prices and fleeting order direction, the relation between option Open Interest and fleeting order direction, as well as their
-
Stable dividends under linear-quadratic optimisation Quantitative Finance (IF 1.3) Pub Date : 2023-07-24 B. Avanzi, D. K. Falden, M. Steffensen
The optimisation criterion for dividends from a risky business is most often formalised in terms of the expected present value of future dividends. That criterion disregards a potential, explicit demand for the stability of dividends. In particular, within actuarial risk theory, the maximisation of future dividends has been studied as the so-called de Finetti problem. However, there the optimal strategies
-
Correction Quantitative Finance (IF 1.3) Pub Date : 2023-07-24
Published in Quantitative Finance (Vol. 23, No. 11, 2023)