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Changes in collateralization have been implicated in significant default (or near-default) events during the financial crisis, most notably with AIG. We have developed a framework for quantifying this effect based on moving between Merton-type and Black-Cox-type structural default models. Our framework leads to a single equation that emcompasses the range of possibilities, including collateralization remargining freq…
Among professionals and academics alike, it is well known that active portfolio management is unable to provide additional risk-adjusted returns relative to their benchmarks. For this reason, passive wealth management has emerged in recent decades to offer returns close to benchmarks at a lower cost. In this article, we first refine the existing results on the theoretical properties of oblique Brownian motion. Then, …
Machine learning models have demonstrated remarkable efficacy and efficiency in a wide range of stock forecasting tasks. However, the inherent challenges of data scarcity, including low signal-to-noise ratio (SNR) and data homogeneity, pose significant obstacles to accurate forecasting. To address this issue, we propose a novel approach that utilizes artificial intelligence-generated samples (AIGS) to enhance the tra…
Motivated by the AIG bailout case in the financial crisis of 2007-2008, we consider an insurer who wants to maximize the expected utility of the terminal wealth by selecting optimal investment and risk control strategies. The insurer's risk process is modelled by a jump-diffusion process and is negatively correlated with the capital gains in the financial market. We obtain explicit solution to optimal strategies for …
Share prices of financial companies from the S&P 500 list have been modeled by a linear function of consumer price indices in the USA. The Johansen and Engle-Granger tests for cointegration both demonstrated the presence of an equilibrium long-term relation between observed and predicted time series. Econometrically, the pricing concept is valid. For several companies, share prices are defined only by CPI readings in…
Portfolio management issues have been extensively studied in the field of artificial intelligence in recent years, but existing deep learning-based quantitative trading methods have some areas where they could be improved. First of all, the prediction mode of stocks is singular; often, only one trading expert is trained by a model, and the trading decision is solely based on the prediction results of the model. Secon…
In April 2020, the Chicago Mercantile Exchange temporarily switched the pricing formula for West Texas Intermediate oil market options from the Black model to the Bachelier model. In this context, we introduce an additive Bachelier model that provides a simple closed-form solution and a good description of the implied volatility surface. This new additive model exhibits several notable mathematical and financial prop…
We propose a static equilibrium model for limit order book where profit-maximizing investors receive an information signal regarding the liquidation value of the asset and execute via a competitive dealer with random initial inventory, who trades against a competitive limit order book populated by liquidity suppliers. We show that an equilibrium exists for bounded signal distributions, obtain closed form solutions fo…
We develop a model to price inflation and interest rates derivatives using continuous-time dynamics that have some links with macroeconomic monetary DSGE models equipped with a Taylor rule: in particular, the reaction function of the central bank, the bond market liquidity, inflation and growth expectations play an important role. The model can explain the effects of non-standard monetary policies (like quantitative …
Evergrande’s 2021 missed payments opened a still-running Chinese property and LGFV credit squeeze — a developer-leverage and pre-sale trust crisis under a political deleveraging campaign.
Lehman weekend (13–15 September 2008) was the disorderly failure of a primary dealer — the moment a housing/credit crunch became a global run on counterparties and money funds.