arXiv · arXiv q-fin · 2024
In decentralized finance, any individual can pool their assets into an automated market maker (AMM) -- herein we focus on the constant product market maker (CPMM) -- in exchange for a claim on a fraction of future pool assets and fees earned from the market making operations. This position is represented by a liquidity token, whose prevailing on-chain price is effectively the initial deposited assets. Though this pri…
Maxim Bichuch, Zachary Feinstein
arXiv · arXiv q-fin · 2008
In this work we derive an approximated no-arbitrage market valuation formula for Constant Maturity Credit Default Swaps (CMCDS). We move from the CDS options market model in Brigo (2004), and derive a formula for CMCDS that is the analogous of the formula for constant maturity swaps in the default free swap market under the LIBOR market model. A "convexity adjustment"-like correction is present in the related formula…
Damiano Brigo
arXiv · arXiv q-fin · 2020
In this paper the zero vanna implied volatility approximation for the price of freshly minted volatility swaps is generalised to seasoned volatility swaps. We also derive how volatility swaps can be hedged using a strip of vanilla options with weights that are directly related to trading intuition. Additionally, we derive first and second order hedges for volatility swaps using only variance swaps. As dynamically tra…
Frido Rolloos
arXiv · arXiv · 2026
This paper develops a robust mathematical framework for Constant Function Market Makers (CFMMs) by transitioning from traditional token reserve analyses to a coordinate system defined by price and intrinsic liquidity. We establish a canonical parametrization of the bonding curve that ensures dimensional consistency across diverse trading functions, such as those employed by Uniswap and Balancer, and demonstrate that …
Jimmy Risk, Shen-Ning Tung, Tai-Ho Wang
arXiv · arXiv · 2025
We propose a new pseudo-Siamese Network for Asset Pricing (SNAP) model, based on deep learning approaches, for conditional asset pricing. Our model allows for the deep alpha, deep beta and deep factor risk premia conditional on high dimensional observable information of financial characteristics and macroeconomic states, while storing the long-term dependency of the informative features through long short-term memory…
Hongyi Liu
arXiv · arXiv · 2025
This study investigates the pre-trained RNN attention models with the mainstream attention mechanisms, such as additive attention, Luong's three attentions, global self-attention and sliding window sparse attention, for the empirical asset pricing research on the top 420 large-cap US stocks. This is the first paper on the large-scale state-of-the-art (SOTA) attention mechanisms applied in the asset pricing context. T…
Shanyan Lai
arXiv · arXiv · 2025
In this study, MLP models with dynamic structure are applied to factor models for asset pricing tasks. Concretely, the MLP pyramid model structure was employed on firm characteristic-sorted portfolio factors for modelling the large-cap US stocks. It was further developed as a practical factor investing strategy based on the predictions. The main findings were evaluated from 2 angles: model predictive power and backte…
Shanyan Lai
arXiv · arXiv · 2025
This paper proposes an innovative Transformer model, Single-directional representative from Transformer (SERT), for US large capital stock pricing. It also innovatively applies the pre-trained Transformer models under the stock pricing and factor investment context. They are compared with standard Transformer models and encoder-only Transformer models in three periods covering the entire COVID-19 pandemic to examine …
Shanyan Lai
arXiv · arXiv · 2025
Although the valuation of life contingent assets has been thoroughly investigated under the framework of mathematical statistics, little financial economics research pays attention to the pricing of these assets in a non-arbitrage, complete market. In this paper, we first revisit the Fundamental Theorem of Asset Pricing (FTAP) and the short proof of it. Then we point out that discounted asset price is a martingale on…
Patrick Ling
arXiv · arXiv · 2024
The Capital Asset Pricing Model (CAPM) relates a well-diversified stock portfolio to a benchmark portfolio. We insert size effect in the CAPM, capturing the observation that small stocks have higher risk and return than large stocks, on average. Our goal is to make the resulting linear regressions have independent identically distributed Gaussian residuals. In some cases, we find that including the Volatility Index a…
Abraham Atsiwo, Andrey Sarantsev
arXiv · arXiv · 2024
We formulate quantum computing solutions to a large class of dynamic nonlinear asset pricing models using algorithms, in theory exponentially more efficient than classical ones, which leverage the quantum properties of superposition and entanglement. The equilibrium asset pricing solution is a quantum state. We introduce quantum decision-theoretic foundations of ambiguity and model/parameter uncertainty to deal with …
Eric Ghysels, Jack Morgan
arXiv · arXiv · 2023
This whitepaper introduces an innovative mechanism for pricing perpetual contracts and quoting fees to traders based on current market conditions. The approach employs liquidity curves and on-chain oracles to establish a new adaptive pricing framework that considers various factors, ensuring pricing stability and predictability. The framework utilizes parabolic and sigmoid functions to quote prices and fees, accounti…
Chester Bella, Danny Boahen, Sudeep Biswas
arXiv · arXiv · 2023
We prove a version of the fundamental theorem of asset pricing (FTAP) in continuous time that is based on the strict no-arbitrage condition and that is applicable to both frictionless markets and markets with proportional transaction costs. We consider a market with a single risky asset whose ask price process is higher than or equal to its bid price process. Neither the concatenation property of the set of wealth pr…
Christoph Kühn
arXiv · arXiv · 2023
This paper presents an empirical analysis of the capital asset pricing model using trading data for the Chinese A-share market from 2000 to 2019. Firstly, the standard CAPM is tested using a Fama-MacBetch regression and although the results successfully test the three core hypotheses, the resulting beta risk does not have a significant impact on returns. Secondly, the Fama-French three-factor model, which uses a comb…
Kai Ren
arXiv · arXiv · 2020
Although the CML (Capital Market Line), the Intertemporal-CAPM, the CAPM/SML (Security Market Line) and the Intertemporal Arbitrage Pricing Theory (IAPT) are widely used in portfolio management, valuation and capital markets financing; these theories are inaccurate and can adversely affect risk management and portfolio management processes. This article introduces several empirically testable financial theories that …
Michael Nwogugu
arXiv · arXiv · 2017
We present a version of the fundamental theorem of asset pricing (FTAP) for continuous time large financial markets with two filtrations in an $L^p$-setting for $ 1 \leq p < \infty$. This extends the results of Yuri Kabanov and Christophe Stricker \cite{KS:06} to continuous time and to a large financial market setting, however, still preserving the simplicity of the discrete time setting. On the other hand it general…
Christa Cuchiero, Irene Klein, Josef Teichmann
arXiv · arXiv · 2014
In the context of large financial markets we formulate the notion of \emph{no asymptotic free lunch with vanishing risk} (NAFLVR), under which we can prove a version of the fundamental theorem of asset pricing (FTAP) in markets with an (even uncountably) infinite number of assets, as it is for instance the case in bond markets. We work in the general setting of admissible portfolio wealth processes as laid down by Y.…
Christa Cuchiero, Irene Klein, Josef Teichmann
arXiv · arXiv · 2013
The principal portfolios of the standard Capital Asset Pricing Model (CAPM) are analyzed and found to have remarkable hedging and leveraging properties. Principal portfolios implement a recasting of any correlated asset set of N risky securities into an equivalent but uncorrelated set when short sales are allowed. While a determination of principal portfolios in general requires a detailed knowledge of the covariance…
M. Hossein Partovi