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The professional trader's paradox. (arXiv:1905.06722v1 [q-fin.GN])

May 16, 2019 by Quantitative Finance at arXiv   Comments (0)

In this article, I will present a paradox whose purpose is to draw your
attention to an important topic in finance, concerning the non-independence of
the financial returns (non-ergodic hypothesis). In this paradox, we have two
people sitting at a table separated by a black sheet so that they cannot see
each other and are playing the following game: the person we call A flip a coin
and the person we'll call B tries to guess the outcome of the coin flip. At the
end of the game, both people are...

Unconventional Exchange: Methods for Statistical Analysis of Virtual Goods. (arXiv:1905.06721v1 [q-fin.GN])

May 16, 2019 by Quantitative Finance at arXiv   Comments (0)

Hyperinflation and price volatility in virtual economies has the potential to
reduce player satisfaction and decrease developer revenue. This paper describes
intuitive analytical methods for monitoring volatility and inflation in virtual
economies, with worked examples on the increasingly popular multiplayer game
Old School Runescape. Analytical methods drawn from mainstream financial
literature are outlined and applied in order to present a high level overview
of virtual economic activity of...

Options to Receive Employment Gratuity. (arXiv:1905.06733v1 [q-fin.GN])

May 16, 2019 by Quantitative Finance at arXiv   Comments (0)

Employment gratuity is the money companies typically give to their employees
at the end of their contracts as a legal requirement. Like pension, it is a
form of retirement plan and is often given as an alternative to a pension plan.
Nonetheless, there is now a new pattern whereby companies give their employees
the option to receive their gratuity at various stages before the end of their
contracts. In Botswana, for instance, some companies give their employees an
option to receive their...

The ‘Vortex of Volatility’ and the Merger Market  

May 16, 2019 by All About Alpha   Comments (0)

Intralinks, the provider of inter-enterprise collaboration products that is perhaps best known for its Deal Flow Predictor, recently interviewed Paul Aversano, a managing director at the consultancy Alvarez & Marsal. Aversano leads A&M’s private equity services practice, and he is the global practice leader of the transaction advisory group. HeRead More

Inverting the Markovian projection, with an application to local stochastic volatility models. (arXiv:1905.06213v1 [math.PR])

May 15, 2019 by Quantitative Finance at arXiv   Comments (0)

We study two-dimensional stochastic differential equations (SDEs) of
McKean--Vlasov type in which the conditional distribution of the second
component of the solution given the first enters the equation for the first
component of the solution. Such SDEs arise when one tries to invert the
Markovian projection developed by Gy\"ongy (1986), typically to produce an
It\^o process with the fixed-time marginal distributions of a given
one-dimensional diffusion but richer dynamical features. We prove...

Efficient computation of mean reverting portfolios using cyclical coordinate descent. (arXiv:1905.05841v1 [q-fin.PM])

May 15, 2019 by Quantitative Finance at arXiv   Comments (0)

The econometric challenge of finding sparse mean reverting portfolios based
on a subset of a large number of assets is well known. Many current
state-of-the-art approaches fall into the field of co-integration theory, where
the problem is phrased in terms of an eigenvector problem with sparsity
constraint. Although a number of approximate solutions have been proposed to
solve this NP-hard problem, all are based on relatively simple models and are
limited in their scalability. In this paper we...

What is the Minimal Systemic Risk in Financial Exposure Networks?. (arXiv:1905.05931v1 [q-fin.CP])

May 15, 2019 by Quantitative Finance at arXiv   Comments (0)

Management of systemic risk in financial markets is traditionally associated
with setting (higher) capital requirements for market participants. There are
indications that while equity ratios have been increased massively since the
financial crisis, systemic risk levels might not have lowered, but even
increased. It has been shown that systemic risk is to a large extent related to
the underlying network topology of financial exposures. A natural question
arising is how much systemic risk can be...

Reduced Form Capital Optimization. (arXiv:1905.05911v1 [q-fin.PR])

May 15, 2019 by Quantitative Finance at arXiv   Comments (0)

We formulate banks' capital optimization problem as a classic mean variance
optimization, by leveraging an accurate linear approximation to the Shapely or
Constrained Aumann-Shapley (CAS) allocation of max or nested max cost
functions. This reduced form formulation admits an analytical solution, to the
optimal leveraged balance sheet (LBS) and risk weighted assets (RWA) target of
banks' business units for achieving the best return on capital.

Computational Socioeconomics. (arXiv:1905.06166v1 [physics.soc-ph])

May 15, 2019 by Quantitative Finance at arXiv   Comments (0)

Uncovering the structure of socioeconomic systems and timely estimation of
socioeconomic status are significant for economic development. The
understanding of socioeconomic processes provides foundations to quantify
global economic development, to map regional industrial structure, and to infer
individual socioeconomic status. In this review, we will make a brief manifesto
about a new interdisciplinary research field named Computational
Socioeconomics, followed by detailed introduction about...

The connection between multiple prices of an Option at a given time with single prices defined at different times: The concept of weak-value in quantum finance. (arXiv:1905.05813v1 [q-fin.PR])

May 15, 2019 by Quantitative Finance at arXiv   Comments (0)

We introduce a new tool for predicting the evolution of an option for the
cases where at some specific time, there is a high-degree of uncertainty for
identifying its price. We work over the special case where we can predict the
evolution of the system by joining a single price for the Option, defined at
some specific time with a pair of prices defined at another instant. This is
achieved by describing the evolution of the system through a financial
Hamiltonian. The extension to the case of...