Papers, wiki, Option Blackboard, encyclopedia, and cards.
In this paper, we establish a market model for the term structure of forward inflation rates based on the risk-neutral dynamics of nominal and real zero-coupon bonds. Under the market model, we can price inflation caplets as well as inflation swaptions with a formula similar to the Black's formula, thus justify the current market practice. We demonstrate how to further extend the market model to cope with volatility …
Decision-focused learning (DFL) is attractive for portfolio optimization because it trains predictors according to downstream decision quality rather than prediction accuracy alone. However, SPO(Smart, Predict then Optimize surrogate)-based DFL may produce inflated return signals and unstable portfolio reallocations. This study provides a KKT-based interpretation showing that portfolio decisions can be viewed as rank…
Motivated by the current global high inflation scenario, we aim to discover a dynamic multi-period allocation strategy to optimally outperform a passive benchmark while adhering to a bounded leverage limit. To this end, we formulate an optimal control problem to outperform a benchmark portfolio throughout the investment horizon. Assuming the asset prices follow the jump-diffusion model during high inflation periods, …
This paper uses new and recently introduced mathematical techniques to undertake a data-driven study on the systemic nature of global inflation. We start by investigating country CPI inflation over the past 70 years. There, we highlight the systemic nature of global inflation with a judicious application of eigenvalue analysis and determine which countries exhibit most "centrality" with an inner-product based optimiz…
We propose a new model for the joint evolution of the European inflation rate, the European Central Bank official interest rate and the short-term interest rate, in a stochastic, continuous time setting. We derive the valuation equation for a contingent claim and show that it has a unique solution. The contingent claim payoff may depend on all three economic factors of the model and the discount factor is allowed to …
Interest rate market models, like the LIBOR market model, have the advantage that the basic model quantities are directly observable in financial markets. Inflation market models extend this approach to inflation markets, where zero-coupon and year-on-year inflation-indexed swaps are the basic observable products. For inflation market models considered so far closed formulas exist for only one type of swap, but not f…
We propose DeePM (Deep Portfolio Manager), a structured deep-learning macro portfolio manager trained end-to-end to maximize a robust, risk-adjusted utility. DeePM addresses three fundamental challenges in financial learning: (1) it resolves the asynchronous "ragged filtration" problem via a Directed Delay (Causal Sieve) mechanism that prioritizes causal impulse-response learning over information freshness; (2) it co…
This paper develops a three-currency Heath-Jarrow-Morton framework in which corporate credit is treated as a separate economy, connected to the nominal and real economies through synthetic inflation and credit exchange rates. The framework produces a testable identity. Under joint no-arbitrage, the credit spread of an issuer expressed over the inflation-rateindexed risk-free curve equals the same issuer's credit spre…
For more than four decades, the 60/40 stock/bond portfolio has served as a benchmark for delivering reasonable returns without excessive risk. More recently, a 50/30/20 stock/bond/alternative portfolio has been suggested. We use gold as the alternative and as an inflation hedge. In this paper we ask: how much improvement over these benchmark fixed-weight portfolios can be obtained using widely available public data a…
From viral jokes to a billion-dollar phenomenon, meme coins have become one of the most popular segments in cryptocurrency markets. Unlike utility-focused crypto assets like Bitcoin, meme coins derive value primarily from community sentiment, making them vulnerable to manipulation. This study presents an unprecedented cross-chain analysis of the meme coin ecosystem, examining 34,988 tokens across Ethereum, BNB Smart …
This book, which is in Spanish, provides detailed descriptions, including over 550 mathematical formulas, for over 150 trading strategies across a host of asset classes (and trading styles). This includes stocks, options, fixed income, futures, ETFs, indexes, commodities, foreign exchange, convertibles, structured assets, volatility (as an asset class), real estate, distressed assets, cash, cryptocurrencies, miscella…
We derive simple return models for several classes of bond portfolios. With only one or two risk factors our models are able to explain most of the return variations in portfolios of fixed rate government bonds, inflation linked government bonds and investment grade corporate bonds. The underlying risk factors have natural interpretations which make the models well suited for risk management and portfolio design.
We test whether large language models (LLMs) add value in commodity portfolio construction when the information set and implementation rules are held fixed across strategies. A Hawkish Agent (inflation-tightening prior), a Dovish Agent (growth-easing prior), a Debate Agent, and a deterministic z-score Rule Agent each receive identical FRED macro z-scores and route their tilt signals through the same portfolio engine.…
Daily probability changes in Kalshi macro prediction markets forecast cryptocurrency realized volatility through two distinct channels. The monetary policy channel, measured by Fed rate repricing on KXFED contracts, predicts Bitcoin volatility in sample with t = 3.63 and p < 0.001 but exhibits regime dependence tied to the 2024-2025 rate-cutting cycle. The recession risk signal from KXRECSSNBER proves more stable out…
This article is part of a comprehensive research project on liquidity risk in asset management, which can be divided into three dimensions. The first dimension covers liability liquidity risk (or funding liquidity) modeling, the second dimension focuses on asset liquidity risk (or market liquidity) modeling, and the third dimension considers asset-liability liquidity risk management (or asset-liability matching). The…
As a quantitative characterization of the complicated economy, Macroeconomic Variables (MEVs), including GDP, inflation, unemployment, income, spending, interest rate, etc., are playing a crucial role in banks' portfolio management and stress testing exercise. In recent years, especially during the COVID-19 period and the current high inflation environment, people are frequently talking about the changing "correlatio…
We propose a Gaussian-copula-based framework that learns deal-level dependence directly from observed joint success frequencies across founder, geography, and market attributes. Holding marginal deal success probabilities fixed, deal-level correlation preserves expected portfolio outcomes but shifts the portfolio distribution toward heavier right tails and higher kurtosis. In portfolio simulations, correlation reduce…
Rolling-window factor pipelines for Chinese A-share markets contain a subtle but costly flaw: daily price-move limits (+/-10% main-board, +/-20% STAR/ChiNext) render a fraction of closing prices non-executable, yet standard implementations ingest these values before any row-filtering runs. The contaminated aggregates propagate silently through moving averages, correlations, and ranks--a failure mode we term "upstream…
Natural Gas Storage — Inventory levels driving seasonal price spikes and energy inflation.
A CTA that trades futures on economic data, not only price — growth, inflation, positioning, and nowcasts as the signal set.
Behind the curve means policy (or a book) is too easy or too slow relative to incoming inflation, growth, or a Taylor-type benchmark — the market is already pricing a catch-up.
Hysteresis is path dependence: a temporary shock permanently scars the level of output, employment, or inflation expectations instead of washing out.
NAIRU is the unemployment rate consistent with stable inflation — below it, wage/price pressure tends to rise; above it, inflation tends to cool.
The quantity theory is MV = PY: money times velocity equals nominal income. In the strong form, a one-off money increase raises prices one-for-one if V and Y are stable.
Seigniorage is the real resources a sovereign (or a private issuer of money-like claims) obtains by issuing money whose production cost is below face value.
The Taylor rule is a simple policy reaction: set the policy rate to a neutral real rate plus inflation, then add weights on the inflation gap and the output gap.
Capacity Utilization — How tight industrial capacity is, informing pricing power and capex cycles.
CPI is a fixed-basket consumer-price index — the headline inflation print that sets TIPS, Social Security, and a lot of politics.
Core PCE Inflation — The Fed's preferred inflation gauge, stripping volatile food and energy components.
CPI Shelter Component — The largest CPI bucket, lagged versus spot rents, creating policy communication traps.
Disinflation is a falling inflation rate while prices still rise — the 2023 word, not deflation.
Inflation is a sustained rise in the general price level — a decline in purchasing power, not a one-off relative-price shock.
Inflation Expectations Survey — Household and market-based expectations that can de-anchor if policy credibility erodes.
Monetary Dominance Regime — Regime where the central bank anchors inflation over fiscal needs.
Output Gap — Estimated distance of GDP from potential output, informing policy reaction functions.
Phillips Curve — The relationship between labor market tightness and inflation dynamics, heavily debated in post-pandemic regimes.
PPI measures prices from the seller’s side of the pipeline — an upstream inflation print that may or may not pass through to CPI.
Retail Sales Growth — Nominal and real consumption momentum, critical for growth and inflation nowcasts.
Stagflation is high inflation with stagnant growth and a soft labor market — the 1970s regime that breaks the simple Phillips cartoon.
Unit Labor Costs — Compensation per unit of output — a core driver of services inflation persistence.
US 10-Year Breakeven Inflation reflects the inflation rate implied by the gap between nominal Treasuries and TIPS, serving as a market-based gauge of long-term inflation expectations.
Wage Growth — Nominal pay momentum that feeds services inflation persistence and Fed reaction functions.
The 1973–74 OPEC embargo quadrupled oil prices, fused inflation with a growth shock (stagflation), and ended the last illusions of the post-war energy-cheap regime.
Steepener Flattener Trade — Curve trades expressing views on growth, inflation, and term premium independently of level.
TIPS are US Treasuries whose principal adjusts with CPI — a real-rate instrument, not a magic inflation hedge for every horizon.
Real Effective Exchange Rate — Trade-weighted currency adjusted for inflation differentials.
The Fed’s dual mandate is maximum employment and stable prices — two goals that agree in a demand shock and fight in a supply shock.
Foreign Exchange Intervention — Official buying or selling of currency to manage disorderly moves and imported inflation.
A hard landing is a policy-induced recession — inflation (or a bubble) comes down because demand was broken.
A soft landing is disinflation (or a slowdown) without a recession — the hoped-for path off a hike cycle.
Risk Parity Allocation — Equal risk contribution across asset classes, often levered to bonds in disinflation.
Value Factor — Cheap versus expensive stocks — cyclical performance tied to rates and inflation.
US 10-Year Real Yield measures the inflation-adjusted yield on 10-year Treasuries and is a key benchmark for discount rates, financial conditions, and macro asset pricing.
Time equity beta with oil’s recent move or level — a macro overlay that treats crude as a growth/inflation signal.
Behind the curve means policy (or a book) is too easy or too slow relative to incoming inflation, growth, or a Taylor-type benchmark — the market is already pricing a catch-up.
CPI is a fixed-basket consumer-price index — the headline inflation print that sets TIPS, Social Security, and a lot of politics.
Core PCE Inflation — The Fed's preferred inflation gauge, stripping volatile food and energy components.
Time equity beta with oil’s recent move or level — a macro overlay that treats crude as a growth/inflation signal.
Disinflation is a falling inflation rate while prices still rise — the 2023 word, not deflation.
Foreign Exchange Intervention — Official buying or selling of currency to manage disorderly moves and imported inflation.
A hard landing is a policy-induced recession — inflation (or a bubble) comes down because demand was broken.
Hysteresis is path dependence: a temporary shock permanently scars the level of output, employment, or inflation expectations instead of washing out.
Inflation is a sustained rise in the general price level — a decline in purchasing power, not a one-off relative-price shock.
Inflation Expectations Survey — Household and market-based expectations that can de-anchor if policy credibility erodes.
Monetary Dominance Regime — Regime where the central bank anchors inflation over fiscal needs.
NAIRU is the unemployment rate consistent with stable inflation — below it, wage/price pressure tends to rise; above it, inflation tends to cool.
Natural Gas Storage — Inventory levels driving seasonal price spikes and energy inflation.
The 1973–74 OPEC embargo quadrupled oil prices, fused inflation with a growth shock (stagflation), and ended the last illusions of the post-war energy-cheap regime.
Phillips Curve — The relationship between labor market tightness and inflation dynamics, heavily debated in post-pandemic regimes.
PPI measures prices from the seller’s side of the pipeline — an upstream inflation print that may or may not pass through to CPI.
Real Effective Exchange Rate — Trade-weighted currency adjusted for inflation differentials.
Retail Sales Growth — Nominal and real consumption momentum, critical for growth and inflation nowcasts.
Risk Parity Allocation — Equal risk contribution across asset classes, often levered to bonds in disinflation.
A soft landing is disinflation (or a slowdown) without a recession — the hoped-for path off a hike cycle.
Stagflation is high inflation with stagnant growth and a soft labor market — the 1970s regime that breaks the simple Phillips cartoon.
Steepener Flattener Trade — Curve trades expressing views on growth, inflation, and term premium independently of level.
A CTA that trades futures on economic data, not only price — growth, inflation, positioning, and nowcasts as the signal set.
The Taylor rule is a simple policy reaction: set the policy rate to a neutral real rate plus inflation, then add weights on the inflation gap and the output gap.