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Quantitative Finance at arXiv wrote a new blog post titled Dynamic time series clustering via volatility change-points. (arXiv:1906.10372v1 [stat.ME])
This note outlines a method for clustering time series based on a statistical model in which volatility shifts at unobserved change-points. The model accommodates some classical stylized features of returns and its relation to GARCH is discussed. Clustering is performed using a probability metric evaluated between posterior distributions of the most recent change-point associated with each series. This implies series are grouped together at a given time if there is evidence the most recent shifts in their respective volatilities were coincident or closely timed. The clustering method...
31 minutes ago
Quantitative Finance at arXiv wrote a new blog post titled Against the Norm: Modeling Daily Stock Returns with the Laplace Distribution. (arXiv:1906.10325v1 [q-fin.MF])
Modeling stock returns is not a new task for mathematicians, investors, and portfolio managers, but it remains a difficult objective due to the ebb and flow of stock markets. One common solution is to approximate the distribution of stock returns with a normal distribution. However, normal distributions place infinitesimal probabilities on extreme outliers, but these outliers are of particular importance in the practice of investing. In this paper, we investigate the normality of the distribution of daily returns of major stock market indices. We find that the normal distribution is not a...
31 minutes ago
Quantitative Finance at arXiv wrote a new blog post titled Hybrid symbiotic organisms search feedforward neural net-works model for stock price prediction. (arXiv:1906.10121v1 [q-fin.ST])
The prediction of stock prices is an important task in economics, investment and financial decision-making. It has for several decades, spurred the interest of many researchers to design stock price predictive models. In this paper, the symbiotic organisms search algorithm, a new metaheuristic algorithm is employed as an efficient method for training feedforward neural networks (FFNN). The training process is used to build a better stock price predictive model. The Straits Times Index, Nikkei 225, NASDAQ Composite, S&P 500, and Dow Jones Industrial Average indices were utilized as time...
31 minutes ago
Quantitative Finance at arXiv wrote a new blog post titled Systemic risk measures with markets volatility. (arXiv:1812.06185v3 [q-fin.RM] UPDATED)
As systemic risk has become a hot topic in the financial markets, how to measure, allocate and regulate the systemic risk are becoming especially important. However, the financial markets are becoming more and more complicate, which makes the usual study of systemic risk to be restricted. In this paper, we will study the systemic risk measures on a special space $L^{p(\cdot)}$ where the variable exponent $p(\cdot)$ is no longer a given real number like the space $L^{p}$, but a random variable, which reflects the possible volatility of the financial markets. Finally, the dual...
31 minutes ago
Quantitative Finance at arXiv wrote a new blog post titled Quasiconvex risk measures with markets volatility. (arXiv:1806.08701v4 [q-fin.RM] UPDATED)
Since the quasiconvex risk measures is a bigger class than the well known convex risk measures, the study of quasiconvex risk measures makes sense especially in the financial markets with volatility. In this paper, we will study the quasiconvex risk measures defined on a special space $L^{p(\cdot)}$ where the variable exponent $p(\cdot)$ is no longer a given real number like the space $L^{p}$, but a random variable, which reflects the possible volatility of the financial markets. The dual representation for this quasiconvex risk measures will also provided.
31 minutes ago
Quantitative Finance at arXiv wrote a new blog post titled On Capital Allocation under Time and Information Constraints. (arXiv:1906.10624v1 [econ.GN])
Attempts to allocate capital to a selection of different investment objects often face the problem that investors' decisions are made under limited information (no historical return data) and an extremely limited timeframe. Nevertheless, in some cases, rational investors with a certain level of experience are able to ordinally rank investment alternatives through relative assessments of the probability that an investment will be successful. However, to apply traditional portfolio optimization models, analysts must use historical (or simulated/expected) return data as the basis for...
31 minutes ago
Quantitative Finance at arXiv wrote a new blog post titled Lead-lag Relationships in Foreign Exchange Markets. (arXiv:1906.10388v1 [q-fin.ST])
Lead-lag relationships among assets represent a useful tool for analyzing high frequency financial data. However, research on these relationships predominantly focuses on correlation analyses for the dynamics of stock prices, spots and futures on market indexes, whereas foreign exchange data have been less explored. To provide a valuable insight on the nature of the lead-lag relationships in foreign exchange markets here we perform a detailed study for the one-minute log returns on exchange rates through three different approaches: i) lagged correlations, ii) lagged partial correlations and...
31 minutes ago
All About Alpha wrote a new blog post titled Hedge Fund Index Backslides in May; Remains in Positive Territory
Red ink spoiled an otherwise positive 2019 for he Eurekahedge Hedge Fund Index. The decline of 0.71% leaves the year-to-date performance still well up, at +4.32%. Approximately 41.6% of the funds Eurekahedge tracks were in the black for the month. And 15% have generated double-digit gains year-to-date. North America-mandated hedgeRead More
5 hours ago
Complexity Digest wrote a new blog post titled Information-theoretic measures of ecosystem change, sustainability, and resilience
We introduce five measures describing the system-wide behaviour of complex ecological systems. Within an information-theoretic framework, these measures account for changes in both species diversity and total biomass to describe (i) overall system change, (ii) sustainability to external pressure, (iii) shift from a baseline state and two types of resilience: (iv) ability to recover from local pressures and (v) overall potential to return to a baseline state. We apply these measures to study the behaviour of three computer models: a large 59-functional groups complex ecological model (Ecopath...
9 hours ago
The Reformed Broker wrote a new blog post titled My take on the Bernie Sanders plan to wipe out student loan debt
One of the signature achievements of the post-millennial capital markets is the driving down of investor costs to near zero - should we reverse that? ... The post My take on the Bernie Sanders plan to wipe out student loan debt appeared first on The Reformed Broker.
13 hours ago
Quantitative Finance at arXiv wrote a new blog post titled Change of Measure in Midcurve Pricing. (arXiv:1812.07415v2 [q-fin.PR] UPDATED)
We derive measure change formulae required to price midcurve swaptions in the forward swap annuity measure with stochastic annuities' ratios. We construct the corresponding linear and exponential terminal swap rate pricing models and show how they capture the midcurve swaption correlation skew.
yesterday
Quantitative Finance at arXiv wrote a new blog post titled Long Run Feedback in the Broker Call Money Market. (arXiv:1906.10084v1 [econ.GN])
I unravel the basic long run dynamics of the broker call money market, which is the pile of cash that funds margin loans to retail clients (read: continuous time Kelly gamblers). Call money is assumed to supply itself perfectly inelastically, and to continuously reinvest all principal and interest. I show that the relative size of the money market (that is, relative to the Kelly bankroll) is a martingale that nonetheless converges in probability to zero. The margin loan interest rate is a submartingale that converges in mean square to the choke price $r_\infty:=\nu-\sigma^2/2$, where $\nu$ is...
yesterday
Quantitative Finance at arXiv wrote a new blog post titled A New Solution to Market Definition: An Approach Based on Multi-dimensional Substitutability Statistics. (arXiv:1906.10030v1 [econ.GN])
Market definition is an important component in the premerger investigation, but the models used in the market definition have not developed much in the past three decades since the Critical Loss Analysis (CLA) was proposed in 1989. The CLA helps the Hypothetical Monopolist Test to determine whether the hypothetical monopolist is going to profit from the small but significant and non-transitory increase in price (SSNIP). However, the CLA has long been criticized by academic scholars for its tendency to conclude a narrow market. Although the CLA was adopted by the 2010 Horizontal Merger...
yesterday
Quantitative Finance at arXiv wrote a new blog post titled Semi-parametric Realized Nonlinear Conditional Autoregressive Expectile and Expected Shortfall. (arXiv:1906.09961v1 [q-fin.RM])
A joint conditional autoregressive expectile and Expected Shortfall framework is proposed. The framework is extended through incorporating a measurement equation which models the contemporaneous dependence between the realized measures and the latent conditional expectile. Nonlinear threshold specification is further incorporated into the proposed framework. A Bayesian Markov Chain Monte Carlo method is adapted for estimation, whose properties are assessed and compared with maximum likelihood via a simulation study. One-day-ahead VaR and ES forecasting studies, with seven market...
yesterday
Quantitative Finance at arXiv wrote a new blog post titled Relative Bound and Asymptotic Comparison of Expectile with Respect to Expected Shortfall. (arXiv:1906.09729v1 [q-fin.RM])
Expectile bears some interesting properties in comparison to the industry wide expected shortfall in terms of assessment of tail risk. We study the relationship between expectile and expected shortfall using duality results and the link to optimized certainty equivalent. Lower and upper bounds of expectile are derived in terms of expected shortfall as well as a characterization of expectile in terms of expected shortfall. Further, we study the asymptotic behavior of expectile with respect to expected shortfall as the risk level goes to $0$ in terms of extreme value distributions. Illustrating...
yesterday
Quantitative Finance at arXiv wrote a new blog post titled Identify and understand pay-it-forward reciprocity using millions of online red packets. (arXiv:1906.09698v1 [econ.GN])
Pay-it-forward reciprocity encourages the spread of prosocial behavior. However, existing empirical evidence of pay-it-forward behavior has been largely based on laboratory experiments, which are limited in sample size and external validity. Extending this research, our study uses a natural experiment to examine pay-it-forward reciprocity in a real-life context with a large-scale dataset of 3.4 million users of an online platform. Our natural experiment is enabled by the randomness in the mechanism that WeChat, a Chinese online social networking platform, uses to split an online monetary gift...
yesterday
Quantitative Finance at arXiv wrote a new blog post titled Business Taxonomy Construction Using Concept-Level Hierarchical Clustering. (arXiv:1906.09694v1 [cs.CL])
Business taxonomies are indispensable tools for investors to do equity research and make professional decisions. However, to identify the structure of industry sectors in an emerging market is challenging for two reasons. First, existing taxonomies are designed for mature markets, which may not be the appropriate classification for small companies with innovative business models. Second, emerging markets are fast-developing, thus the static business taxonomies cannot promptly reflect the new features. In this article, we propose a new method to construct business taxonomies automatically from...
yesterday
Quantitative Finance at arXiv wrote a new blog post titled Semi-tractability of optimal stopping problems via a weighted stochastic mesh algorithm. (arXiv:1906.09431v1 [q-fin.CP])
In this article we propose a Weighted Stochastic Mesh (WSM) Algorithm for approximating the value of a discrete and continuous time optimal stopping problem. We prove that in the discrete case the WSM algorithm leads to semi-tractability of the corresponding optimal problems in the sense that its complexity is bounded in order by $\varepsilon^{-4}\log^{d+2}(1/\varepsilon)$ with $d$ being the dimension of the underlying Markov chain. Furthermore we study the WSM approach in the context of continuous time optimal stopping problems and derive the corresponding complexity bounds. Although we can...
yesterday
Quantitative Finance at arXiv wrote a new blog post titled Market fragmentation and market consolidation: Multiple steady states in systems of adaptive traders choosing where to trade. (arXiv:1902.06549v2 [q-fin.TR] UPDATED)
Technological progress is leading to proliferation and diversification of trading venues, thus increasing the relevance of the long-standing question of market fragmentation versus consolidation. To address this issue quantitatively, we analyse systems of adaptive traders that choose where to trade based on their previous experience. We demonstrate that only based on aggregate parameters about trading venues, such as the demand to supply ratio, we can assess whether a population of traders will prefer fragmentation or specialization towards a single venue. We investigate what conditions lead...
yesterday
Complexity Digest wrote a new blog post titled Ecosystem antifragility: Beyond integrity and resilience 
We review the concept of ecosystem resilience in its relation to ecosystem integrity from an information theory approach. We summarize the literature on the subject identifying three main narratives: ecosystem properties that enable them to be more resilient; ecosystem response to perturbations; and complexity. We also include original ideas with theoretical and quantitative developments with application examples. The main contribution is a new way to rethink resilience, that is mathematically formal and easy to evaluate heuristically in real-world applications: ecosystem antifragility. An...
yesterday