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Fatou Property, representations, and extensions of law-invariant risk measures on general Orlicz spaces. (arXiv:1701.05967v1 [q-fin.RM])

January 23, 2017 by Quantitative Finance at arXiv   Comments (0)

We provide a variety of results for (quasi)convex, law-invariant functionals
defined on a general Orlicz space, which extend well-known results in the
setting of bounded random variables. First, we show that Delbaen's dual
characterization of the Fatou property, which no longer holds in a general
Orlicz space, continues to hold under the assumption of law-invariance. Second,
we identify the range of Orlicz spaces where the characterization of the Fatou
property in terms of norm lower...

Calibration of a Four-Factor Hybrid Local-Stochastic Volatility Model with a New Control Variate Particle Method. (arXiv:1701.06001v1 [q-fin.MF])

January 23, 2017 by Quantitative Finance at arXiv   Comments (0)

We propose a novel and generic calibration technique for four-factor
foreign-exchange hybrid local-stochastic volatility models with stochastic
short rates. We build upon the particle method introduced by Guyon and
Labord\`ere [Nonlinear Option Pricing, Chapter 11, Chapman and Hall, 2013] and
combine it with new variance reduction techniques in order to accelerate
convergence. We use control variates derived from a calibrated pure local
volatility model, a two-factor Heston-type LSV model (both...

Asymptotic efficiency of the proportional compensation scheme for a large number of producers. (arXiv:1701.06038v1 [q-fin.EC])

January 23, 2017 by Quantitative Finance at arXiv   Comments (0)

We consider a manager, who allocates some fixed total payment amount between
$N$ rational agents in order to maximize the aggregate production. The profit
of $i$-th agent is the difference between the compensation (reward) obtained
from the manager and the production cost. We compare (i) the \emph{normative}
compensation scheme, where the manager enforces the agents to follow an optimal
cooperative strategy; (ii) the \emph{linear piece rates} compensation scheme,
where the manager announces an...

Topology data analysis of critical transitions in financial networks. (arXiv:1701.06081v1 [q-fin.MF])

January 23, 2017 by Quantitative Finance at arXiv   Comments (0)

We develop a topology data analysis-based method to detect early signs for
critical transitions in financial data. From the time-series of multiple stock
prices, we build time-dependent correlation networks, which exhibit topological
structures. We compute the persistent homology associated to these structures
in order to track the changes in topology when approaching a critical
transition. As a case study, we investigate a portfolio of stocks during a
period prior to the US financial crisis of...

A Dual Method For Backward Stochastic Differential Equations with Application to Risk Valuation. (arXiv:1701.06234v1 [math.OC])

January 23, 2017 by Quantitative Finance at arXiv   Comments (0)

We propose a numerical recipe for risk evaluation defined by a backward
stochastic differential equation. Using dual representation of the risk
measure, we convert the risk valuation to a stochastic control problem where
the control is a certain Radon-Nikodym derivative process. By exploring the
maximum principle, we show that a piecewise-constant dual control provides a
good approximation on a short interval. A dynamic programming algorithm extends
the approximation to a finite time horizon....

Economic Growth Model with Constant Pace and Dynamic Memory. (arXiv:1701.06299v1 [q-fin.EC])

January 23, 2017 by Quantitative Finance at arXiv   Comments (0)

The article discusses a generalization of model of economic growth with
constant pace, which takes into account the effects of dynamic memory. Memory
means that endogenous or exogenous variable at a given time depends not only on
their value at that time, but also on their values at previous times. To
describe the dynamic memory we use derivatives of non-integer orders. We obtain
the solutions of fractional differential equations with derivatives of
non-integral order, which describe the...

Economics cannot isolate itself from political theory: a mathematical demonstration. (arXiv:1701.06410v1 [q-fin.EC])

January 23, 2017 by Quantitative Finance at arXiv   Comments (0)

The purpose of this paper is to provide a confession of sorts from an
economist to political science and philosophy. A confession of the weaknesses
of the political position of the economist. It is intended as a guide for
political scientists and philosophers to the ostensible policy criteria of
economics, and an illustration of an argument that demonstrates
logico-mathematically, therefore incontrovertibly, that any policy statement by
an economist contains, or is, a political statement. It...