arXiv · arXiv q-fin · 2025
This paper examines the empirical failure of uncovered interest parity (UIP) and proposes a structural explanation based on a mean-reverting risk premium. We define a realized premium as the deviation between observed exchange rate returns and the interest rate differential, and demonstrate its strong mean-reverting behavior across multiple horizons. Motivated by this pattern, we model the risk premium using an Ornst…
SeungJae Hwang
arXiv · arXiv q-fin · 2014
Currency carry trade is the investment strategy that involves selling low interest rate currencies in order to purchase higher interest rate currencies, thus profiting from the interest rate differentials. This is a well known financial puzzle to explain, since assuming foreign exchange risk is uninhibited and the markets have rational risk-neutral investors, then one would not expect profits from such strategies. Th…
Matthew Ames, Gareth W. Peters, Guillaume Bagnarosa, Ioannis Kosmidis
arXiv · arXiv q-fin · 2013
The currency carry trade is the investment strategy that involves selling low interest rate currencies in order to purchase higher interest rate currencies, thus profiting from the interest rate differentials. This is a well known financial puzzle to explain, since assuming foreign exchange risk is uninhibited and the markets have rational risk-neutral investors, then one would not expect profits from such strategies…
Matthew Ames, Guillaume Bagnarosa, Gareth W. Peters
arXiv · arXiv q-fin · 2013
We consider the problem of exponential utility indifference valuation under the simplified framework where traded and nontraded assets are uncorrelated but where the claim to be priced possibly depends on both. Traded asset prices follow a multivariate Black and Scholes model, while nontraded asset prices evolve as generalized Ornstein-Uhlenbeck processes. We provide a BSDE characterization of the utility indifferenc…
Giuseppe Benedetti, Luciano Campi
arXiv · arXiv · 2013
Keywords: corporate finance, Wrocław University of Economics, net profit margin lub net sales profitability
Marta Tomczak, Anna Ziolkowska, Martyna Rosik
arXiv · arXiv · 2024
There are multiple sources of financial news online which influence market movements and trader's decisions. This highlights the need for accurate sentiment analysis, in addition to having appropriate algorithmic trading techniques, to arrive at better informed trading decisions. Standard lexicon based sentiment approaches have demonstrated their power in aiding financial decisions. However, they are known to suffer …
Thanos Konstantinidis, Giorgos Iacovides, Mingxue Xu, Tony G. Constantinides, Danilo Mandic
arXiv · arXiv · 2020
Uncovering the risk transmitting path within economic sectors in China is crucial for understanding the stability of the Chinese economic system, especially under the current situation of the China-US trade conflicts. In this paper, we try to uncover the risk spreading channels by means of volatility spillovers within the Chinese sectors using stock market data. By applying the generalized variance decomposition fram…
Ying-Ying Shen, Zhi-Qiang Jiang, Jun-Chao Ma, Gang-Jin Wang, Wei-Xing Zhou
arXiv · arXiv · 2014
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 …
Gabriele Sarais, Damiano Brigo