arXiv · arXiv q-fin · 2008
In this work we consider three problems of the standard market approach to pricing of credit index options: the definition of the index spread is not valid in general, the usually considered payoff leads to a pricing which is not always defined, and the candidate numeraire one would use to define a pricing measure is not strictly positive, which would lead to a non-equivalent pricing measure. We give a general mathem…
Massimo Morini, Damiano Brigo
arXiv · arXiv q-fin · 2009
In this article, we develop a model for the evolution of real estate prices. A wide range of inputs, including stochastic interest rates and changing demands for the asset, are considered. Maximizing their expected utility, home owners make optimal sale decisions given these changing market conditions. Using these optimal sale decisions, we simulate the implied evolution of housing prices providing insights into the …
Hazer Inaltekin, Robert Jarrow, Mehmet Saglam, Yildiray Yildirim
arXiv · arXiv q-fin · 2015
The role of credit rating agencies has been under severe scrutiny after the subprime crisis. In this paper we explore the relationship between credit ratings and informational efficiency of a sample of thirty nine corporate bonds of US oil and energy companies from April 2008 to November 2012. For that purpose, we use a powerful statistical tool relatively new in the financial literature: the complexity-entropy causa…
Aurelio F. Bariviera, Luciano Zunino, M. Belen Guercio, Lisana B. Martinez, Osvaldo A. Rosso
arXiv · arXiv q-fin · 2023
This paper uses the concepts of entropy to study the regularity/irregularity of the returns from the Indian Foreign exchange (forex) markets. The Approximate Entropy and Sample Entropy statistics which measure the level of repeatability in the data are used to quantify the randomness in the forex returns from the time period 2006 to 2021. The main objective of the research is to see how the randomness of the foreign …
Radhika Prosad Datta
arXiv · arXiv q-fin · 2017
Pearson correlation and mutual information based complex networks of the day-to-day returns of US S&P500 stocks between 1985 and 2015 have been constructed in order to investigate the mutual dependencies of the stocks and their nature. We show that both networks detect qualitative differences especially during (recent) turbulent market periods thus indicating strongly fluctuating interconnections between the stocks o…
Alexander Haluszczynski, Ingo Laut, Heike Modest, Christoph Räth
arXiv · arXiv q-fin · 2016
We show how bad and good volatility propagate through forex markets, i.e., we provide evidence for asymmetric volatility connectedness on forex markets. Using high-frequency, intra-day data of the most actively traded currencies over 2007 - 2015 we document the dominating asymmetries in spillovers that are due to bad rather than good volatility. We also show that negative spillovers are chiefly tied to the dragging s…
Jozef Barunik, Evzen Kocenda, Lukas Vacha
arXiv · arXiv q-fin · 2016
The substantial turmoil created by both 2000 dot-com crash and 2008 subprime crisis has fueled the belief that the two classical paradigms of economics, which are the invisible hand and the rational agent, are not appropriate to describe market dynamics and should be abandoned at the benefit of alternative new theoretical concepts. At odd with such a view, using a simple model of choice dynamics from sociophysics, th…
Serge Galam
arXiv · arXiv q-fin · 2015
This paper develops the Jungle model in a credit portfolio framework. The Jungle model is able to model credit contagion, produce doubly-peaked probability distributions for the total default loss and endogenously generate quasi phase transitions, potentially leading to systemic credit events which happen unexpectedly and without an underlying single cause. We show the Jungle model provides the optimal probability di…
J. Molins, E. Vives
arXiv · arXiv q-fin · 2013
We investigate the dynamics of correlations present between pairs of industry indices of US stocks traded in US markets by studying correlation based networks and spectral properties of the correlation matrix. The study is performed by using 49 industry index time series computed by K. French and E. Fama during the time period from July 1969 to December 2011 that is spanning more than 40 years. We show that the corre…
Giuseppe Buccheri, Stefano Marmi, Rosario N. Mantegna
arXiv · arXiv q-fin · 2012
Using data from 92 indices of stock exchanges worldwide, I analize the cluster formation and evolution from 2007 to 2010, which includes the Subprime Mortgage Crisis of 2008, using asset graphs based on distance thresholds. I also study the survivability of connections and of clusters through time and the influence of noise in centrality measures applied to the networks of financial indices.
Leonidas Sandoval Junior
arXiv · arXiv q-fin · 2012
Following the thermodynamic formulation of multifractal measure that was shown to be capable of detecting large fluctuations at an early stage, here we propose a new index which permits us to distinguish events like financial crisis in real time . We calculate the partition function from where we obtain thermodynamic quantities analogous to free energy and specific heat. The index is defined as the normalized energy …
Eder Lucio Fonseca, Fernando F. Ferreira, Paulsamy Muruganandam, Hilda A. Cerdeira
arXiv · arXiv q-fin · 2011
Using a modified damped harmonic oscillator model equivalent to a model of market dynamics with price expectations, we analyze the reaction of financial markets to shocks. In order to do this, we gather data from indices of a variety of financial markets for the 1987 Black Monday, the Russian crisis of 1998, the crash after September 11th (2001), and the recent downturn of markets due to the subprime mortgage crisis …
Leonidas Sandoval Junior, Italo De Paula Franca
arXiv · arXiv q-fin · 2011
Using the eigenvalues and eigenvectors of correlations matrices of some of the main financial market indices in the world, we show that high volatility of markets is directly linked with strong correlations between them. This means that markets tend to behave as one during great crashes. In order to do so, we investigate several financial market crises that occurred in the years 1987 (Black Monday), 1989 (Russian cri…
Leonidas Sandoval Junior, Italo De Paula Franca
arXiv · arXiv q-fin · 2009
Atoms and molecules are important conceptual entities we invented to understand the physical world around us. The key to their usefulness lies in the organization of nuclear and electronic degrees of freedom into a single dynamical variable whose time evolution we can better imagine. The use of such effective variables in place of the true microscopic variables is possible because of the separation between nuclear/el…
Yik Wen Goo, Tong Wei Lian, Wei Guang Ong, Wen Ting Choi, Siew-Ann Cheong
arXiv · arXiv q-fin · 2008
Proving the existence of speculative financial bubbles even a posteriori has proven exceedingly difficult so anticipating a speculative bubble ex ante would at first seem an impossible task. Still as illustrated by the recent turmoil in financial markets initiated by the so called subprime crisis there is clearly an urgent need for new tools in our understanding and handling of financial speculative bubbles. In contr…
Magda Roszczynska, Andrzej Nowak, Daniel Kamieniarz, Sorin Solomon, Jorgen Vitting Andersen