arXiv · arXiv q-fin · 2021
What causes house prices to rise and fall? Economists identify household access to credit as a crucial factor. "Loan-to-Value" and "Debt-to-GDP" ratios are the standard measures for credit access. However, these measures fail to explain the depth of the Dutch housing bust after the 2009 Financial Crisis. This work is the first to model household lending capacity based on the formulas that Dutch banks use in the mortg…
Menno Schellekens, Taha Yasseri
arXiv · arXiv q-fin · 2020
This paper studies an optimal investing problem for a retiree facing longevity risk and living standard risk. We formulate the investing problem as a portfolio choice problem under a time-varying risk capacity constraint. We derive the optimal investment strategy under the specific condition on model parameters in terms of second-order ordinary differential equations. We demonstrate an endogenous number that measures…
Weidong Tian, Zimu Zhu
arXiv · arXiv q-fin · 2023
Price-mediated contagion occurs when a positive feedback loop develops following a drop in asset prices which forces banks and other financial institutions to sell their holdings. Prior studies of such events fix the level of market liquidity without regards to the level of stress applied to the system. This paper introduces a framework to understand price-mediated contagion in a system where the capacity of the mark…
Zhiyu Cao, Zachary Feinstein
arXiv · arXiv q-fin · 2010
Credit networks represent a way of modeling trust between entities in a network. Nodes in the network print their own currency and trust each other for a certain amount of each other's currency. This allows the network to serve as a decentralized payment infrastructure---arbitrary payments can be routed through the network by passing IOUs between trusting nodes in their respective currencies---and obviates the need f…
Pranav Dandekar, Ashish Goel, Ramesh Govindan, Ian Post
arXiv · arXiv q-fin · 2026
The integration of thematic satellite allocations into core-satellite portfolio architectures is commonly approached using factor exposures, discretionary convictions, or backtested performance, with feasibility assessed primarily through liquidity screens or market-impact considerations. While such approaches may be appropriate at institutional scale, they are ill-suited to small portfolios and robustness-oriented a…
Roberto Garrone
arXiv · arXiv q-fin · 2019
Exchanges acquire excess processing capacity to accommodate trading activity surges associated with zero-sum high-frequency trader (HFT) "duels." The idle capacity's opportunity cost is an externality of low-latency trading. We build a model of decentralized exchanges (DEX) with flexible capacity. On DEX, HFTs acquire speed in real-time from peer-to-peer networks. The price of speed surges during activity bursts, as …
Michael Brolley, Marius Zoican
arXiv · arXiv q-fin · 2015
The ultimate value of theories of the fundamental mechanisms comprising the asset price in financial systems will be reflected in the capacity of such theories to understand these systems. Although the models that explain the various states of financial markets offer substantial evidences from the fields of finance, mathematics, and even physics to explain states observed in the real financial markets, previous theor…
Kyubin Yim, Gabjin Oh, Seunghwan Kim
arXiv · arXiv q-fin · 2026
Battery energy storage systems (BESS) participating in multi-market electricity trading require price forecasts to optimize dispatch decisions. A widely held assumption is that forecast accuracy, measured by standard metrics such as mean absolute error (MAE), drives trading performance. We challenge this assumption using a hierarchical three-layer optimization system trading simultaneously on frequency containment re…
Alessandro Falezza
arXiv · arXiv q-fin · 2025
This paper explores how Large Language Models (LLMs) behave in a classic experimental finance paradigm widely known for eliciting bubbles and crashes in human participants. We adapt an established trading design, where traders buy and sell a risky asset with a known fundamental value, and introduce several LLM-based agents, both in single-model markets (all traders are instances of the same LLM) and in mixed-model "b…
Thomas Henning, Siddhartha M. Ojha, Ross Spoon, Jiatong Han, Colin F. Camerer
arXiv · arXiv q-fin · 2025
Large Language Models (LLMs) have recently gained popularity in stock trading for their ability to process multimodal financial data. However, most existing methods focus on single-stock trading and lack the capacity to reason over multiple candidates for portfolio construction. Moreover, they typically lack the flexibility to revise their strategies in response to market shifts, limiting their adaptability in real-w…
Kefan Chen, Hussain Ahmad, Diksha Goel, Claudia Szabo
arXiv · arXiv q-fin · 2025
This paper investigates the investment problem of constructing an optimal no-short sequential portfolio strategy in a market with a latent dependence structure between asset prices and partly unobservable side information, which is often high-dimensional. The results demonstrate that a dynamic strategy, which forms a portfolio based on perfect knowledge of the dependence structure and full market information over tim…
Duy Khanh Lam
arXiv · arXiv q-fin · 2025
As renewable energy integration increases supply variability, battery energy storage systems (BESS) present a viable solution for balancing supply and demand. This paper proposes a novel approach for optimizing battery BESS participation in multiple electricity markets. We develop a joint bidding strategy that combines participation in the primary frequency reserve market with continuous trading in the intraday marke…
Yiming Zhang, Wolfgang Ridinger, David Wozabal
arXiv · arXiv q-fin · 2025
Large language models are reshaping quantitative investing by turning unstructured financial information into evidence-grounded signals and executable decisions. This survey synthesizes research with a focus on equity return prediction and trading, consolidating insights from domain surveys and more than fifty primary studies. We propose a task-centered taxonomy that spans sentiment and event extraction, numerical an…
Weilong Fu
arXiv · arXiv q-fin · 2023
Unlike developed market, some emerging markets are dominated by retail and unprofessional trading. China A share market is a good and fitting example in last 20 years. Meanwhile, lots of research show professional investor in China A share market continuously generate excess return compare with total market index. Specifically, this excess return mostly come from stock selectivity ability instead of market timing. Ho…
Ke Zhang
arXiv · arXiv q-fin · 2023
Artificial Intelligence (AI) and Machine Learning (ML) are transforming the domain of Quantitative Trading (QT) through the deployment of advanced algorithms capable of sifting through extensive financial datasets to pinpoint lucrative investment openings. AI-driven models, particularly those employing ML techniques such as deep learning and reinforcement learning, have shown great prowess in predicting market trends…
Maochun Xu, Zixun Lan, Zheng Tao, Jiawei Du, Zongao Ye
arXiv · arXiv q-fin · 2022
Traditional approaches to financial asset allocation start with returns forecasting followed by an optimization stage that decides the optimal asset weights. Any errors made during the forecasting step reduce the accuracy of the asset weightings, and hence the profitability of the overall portfolio. The Portfolio Transformer (PT) network, introduced here, circumvents the need to predict asset returns and instead dire…
Damian Kisiel, Denise Gorse
arXiv · arXiv q-fin · 2022
We develop a cross-border market model for two countries based on a continuous trading mechanism, in which the transmission capacities that enable transactions between market participants from different countries are limited. Our market model can be described by a regime-switching process alternating between active and inactive regimes, in which cross-border trading is possible respectively prohibited. Starting from …
Cassandra Milbradt, Dörte Kreher
arXiv · arXiv q-fin · 2009
Financial markets display scale-free behavior in many different aspects. The power-law behavior of part of the distribution of individual wealth has been recognized by Pareto as early as the nineteenth century. Heavy-tailed and scale-free behavior of the distribution of returns of different financial assets have been confirmed in a series of works. The existence of a Pareto-like distribution of the wealth of market p…
M. Ebert, W. Paul