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In this paper, we propose a methodology based on piece-wise homogeneous Markov chain for credit ratings and a multivariate model of the credit spreads to evaluate the financial risk in European Union (EU). Two main aspects are considered: how the financial risk is distributed among the European countries and how large is the value of the total risk. The first aspect is evaluated by means of the expected value of a dy…
The European Union Emissions Trading System (EU ETS), the world's first and largest cap-and-trade carbon market, is a cornerstone of EU climate policy. This study provides a comprehensive empirical analysis of the EU carbon market's efficiency, price dynamics, and structural network from 2010 to 2020. First, we identify significant price clustering and short-term return predictability using an AR-GARCH model, achievi…
This study conducts a bibliometric review of scientific literature on the European Union Emissions Trading System (EU ETS) from 2004 to 2024, using research articles from the Scopus database. Using the Bibliometrix R package, we analyze publication trends, key themes, influential authors, and prominent journals related to the EU ETS. Our results indicate a notable increase in research activity over the past two decad…
In this paper, using the shrinkage-based approach for portfolio weights and modern results from random matrix theory we construct an effective procedure for testing the efficiency of the expected utility (EU) portfolio and discuss the asymptotic behavior of the proposed test statistic under the high-dimensional asymptotic regime, namely when the number of assets $p$ increases at the same rate as the sample size $n$ s…
Using the United Nations COMTRADE database we apply the reduced Google matrix (REGOMAX) algorithm to analyze the multiproduct world trade in years 2004-2016. Our approach allows to determine the trade balance sensitivity of a group of countries to a specific product price increase from a specific exporting country taking into account all direct and indirect trade pathways via all world countries exchanging 61 UN COMT…
This paper proposes an empirical test of financial contagion in European equity markets during the tumultuous period of 2008-2011. Our analysis shows that traditional GARCH and Gaussian stochastic-volatility models are unable to explain two key stylized features of global markets during presumptive contagion periods: shocks to aggregate market volatility can be sudden and explosive, and they are associated with speci…
The search for a market design that ensures stable bank funding is at the top of regulators' policy agenda. This paper empirically shows that the central counterparty (CCP)-based euro interbank repo market features this stability. Using a unique and comprehensive data set, we show that the market is resilient during crisis episodes and may even act as a shock absorber, in the sense that repo lending increases with ri…
Through the analysis of a dataset of ultra high frequency order book updates, we introduce a model which accommodates the empirical properties of the full order book together with the stylized facts of lower frequency financial data. To do so, we split the time interval of interest into periods in which a well chosen reference price, typically the mid price, remains constant. Within these periods, we view the limit o…
Proper conduct of monetary policy requires understanding the monetary transmission mechanism, to monitor the economy, make decisions on the stance of policy, and explain the policy actions to the public. Hence, gathering evidence on the monetary transmission mechanism in the euro area has been a priority for the Eurosystem. This 2003 book presents the results of a multi-year collaborative project conducted by the Eur…
Modern high-frequency trading (HFT) environments are characterized by sudden price spikes that present both risk and opportunity, but conventional financial models often fail to capture the required fine temporal structure. Spiking Neural Networks (SNNs) offer a biologically inspired framework well-suited to these challenges due to their natural ability to process discrete events and preserve millisecond-scale timing…
Systemic liquidity risk, defined by the IMF as "the risk of simultaneous liquidity difficulties at multiple financial institutions", is a key topic in macroprudential policy and financial stress analysis. Specialized models to simulate funding liquidity risk and contagion are available but they require not only banks' bilateral exposures data but also balance sheet data with sufficient granularity, which are hardly a…
We develop a dynamic stochastic model of markets with an externality and multiple trading frictions, and cap-and-trade as the leading application. Slow participation, limited intermediation, and heterogeneous information interact in equilibrium: agents choose costly market access, access determines residual compliance demand, intermediary constraints translate residual demand into a surrender-month premium, and the p…
The introduction of leverage on prediction-market event contracts raises three structurally distinct questions that have not been addressed jointly: how leverage changes manipulation incentives, how it interacts with informed-trading rents, and how regulatory frameworks should respond. This paper develops a theoretical framework for the first two and a synthesis of the existing regulatory landscape for the third. The…
This paper explores the journey of AI in finance, with a particular focus on the crucial role and potential of Explainable AI (XAI). We trace AI's evolution from early statistical methods to sophisticated machine learning, highlighting XAI's role in popular financial applications. The paper underscores the superior interpretability of methods like Shapley values compared to traditional linear regression in complex fi…
In a highly interdependent economic world, the nature of relationships between financial entities is becoming an increasingly important area of study. Recently, many studies have shown the usefulness of minimal spanning trees (MST) in extracting interactions between financial entities. Here, we propose a modified MST network whose metric distance is defined in terms of cross-correlation coefficient absolute values, e…
In 2004 all ECB publications will feature a motif taken from the €100 banknote. This paper can be downloaded from the ECB’s website
Financial order flow exhibits a remarkable level of persistence, wherein buy (sell) trades are often followed by subsequent buy (sell) trades over extended periods. This persistence can be attributed to the division and gradual execution of large orders. Consequently, distinct order flow regimes might emerge, which can be identified through suitable time series models applied to market data. In this paper, we propose…
Non Fungible Token (NFT) Industry has been witnessing multi-million dollar trade in recent times. With rapid innovation of the NFT market environment by technology, innovation, and decentralization, it is becoming hard to distinguish between genuine NFT from fads and scams. This article discuss the NFT market microstructure, with a focus on price formation, market structure, transparency, and applications to other fi…
BTP-Bund spread measures the yield difference between Italian and German government bonds and is a key indicator of euro-area sovereign stress and fragmentation risk.
The ECB balance sheet reflects the scale of European Central Bank asset holdings and helps track euro-area liquidity, policy transmission, and duration absorption.
TED Spread measures the difference between interbank lending rates and short-term U.S. government bill yields, historically used as a gauge of credit and funding stress.
Neutral Rate Estimate — Estimates of the equilibrium real policy rate that separates restrictive from accommodative stance.
Statistical Arbitrage — Short-horizon RV on co-moving securities using factor neutralization.
Europe Periphery Spreads — BTP-Bund and similar spreads as euro-area fragmentation gauges.
Black Scholes Model — Baseline European option pricing framework and Greek engine.
Early Exercise Premium — Extra value from American exercise rights versus European.
Delta Neutral Portfolio — Book constructed so first-order spot sensitivity is near zero.
EURIBOR (Rates).
Eurodollar Futures Legacy — Legacy CME short-rate futures still relevant for curve history.
Queue Position (Quant).
Factor Neutrality (Systems).
MiFID II Best Ex (Systems).
Short Sale Disclosure Regime (Systems).
Strategic Petroleum Reserve (Commodities).
Carbon Price EUA (Commodities).
Euroization (FX).
MEV Extraction (Crypto).
Queue Position Value (Microstructure).
iTraxx Europe (Credit).
MREL Requirement — EU minimum requirement for own funds and eligible liabilities.
Eurodollar Legacy Futures — Legacy LIBOR STIR futures superseded by SOFR contracts.
Entropy Pooling Views (Quant).
Eurodollar Cross Asset (FX).
Feedback Loop Euro Area — Operating constraint and control-surface concept for Quant OS desks.
Constraint Map Euro Area — Operating constraint and control-surface concept for Quant OS desks.
Regime Detector Euro Area — Operating constraint and control-surface concept for Quant OS desks.
Treasury Curve Euro Area — Rates and credit cash-market concept for fixed-income desks.
Swap Spread Euro Area — Rates and credit cash-market concept for fixed-income desks.
Credit Spread Euro Area — Rates and credit cash-market concept for fixed-income desks.
OAS Window Euro Area — Rates and credit cash-market concept for fixed-income desks.
GDP Nowcast Euro Area — Macroeconomic indicator or cycle concept used in regime diagnosis.
Industrial Production Euro Area — Macroeconomic indicator or cycle concept used in regime diagnosis.
Retail Sales Euro Area — Macroeconomic indicator or cycle concept used in regime diagnosis.
Capex Survey Euro Area — Macroeconomic indicator or cycle concept used in regime diagnosis.
ABS Tranche Euro Area (Fixed Income).
ADR Parity Europe (Equity).
Adverse Selection EU equities — Execution quality, book dynamics, or venue microstructure concept.
AFS AOCI Euro Area (Banking).
Agency MBS Euro Area (Fixed Income).
Amihud Illiquidity Euro Area — Market or funding liquidity stress and intermediation concept.
Analyst Upgrade Cycle Europe (Equity).
Arrival Price Slippage EU equities — Execution quality, book dynamics, or venue microstructure concept.
Auction Imbalance EU equities — Execution quality, book dynamics, or venue microstructure concept.
Automatic Stabilizer Euro Area (Macro Policy).
Barrier Cluster EURUSD (FX).
BDC NAV EU HY (Credit).
BDC NAV EU IG (Credit).
Black Scholes Model — Baseline European option pricing framework and Greek engine.
Borrow Cost Europe (Equity).
Brokered Deposit Euro Area (Banking).
BTP-Bund spread measures the yield difference between Italian and German government bonds and is a key indicator of euro-area sovereign stress and fragmentation risk.
Building Permits Euro Area (Economy).
Buyback Yield Europe — Equity factor, event, or flow concept for cash equity desks.
Capacity Envelope Euro Area (Systems).
Capacity Utilization Euro Area (Economy).
Capex Survey Euro Area — Macroeconomic indicator or cycle concept used in regime diagnosis.
Capital Control Regime Euro Area (Macro Policy).
Carbon Price EUA (Commodities).