arXiv · arXiv q-fin · 2026
Fundamental-value anchoring of resting liquidity is a causal stabiliser of an order-book market: while the anchor holds, even a heavily leveraged book stays quiet. We take that anchor strength as a continuous control and characterise the endogenous liquidity crises that appear once it is nearly removed. In a single continuous-double-auction market driven by anchored noise traders, chartist herders, a population of fu…
Jan Novotny
arXiv · arXiv q-fin · 2026
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…
Raphael Coelho
arXiv · arXiv q-fin · 2026
Banks must optimize risky investments, dividend payouts, and capital structure under tight Basel III solvency and liquidity constraints, while costly equity issuance serves as a distress-recovery tool. We formulate this as a stochastic control problem that reduces the high-dimensional balance-sheet dynamics to a tractable one-dimensional process in the asset-to-deposit ratio, with state-dependent investment limits. T…
Erhan Bayraktar, Etienne Chevalier, Vathana Ly Vath, Yuqiong Wang
arXiv · arXiv q-fin · 2025
Classical correlation and rolling PCA summarize market dependence through covariance spectra, but they do not provide a unified operator representation for entropy, purity-based mixing, and standardized structural deviations built from rolling multi-feature trajectories. We propose the Quantum Network of Assets (QNA), a quantum-inspired but non-physical density-operator framework in which normalized asset-level state…
Hui Gong, Akash Sedai, Francesca Medda
arXiv · arXiv q-fin · 2026
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.…
Yiqing Wang, Dehao Dai, Ding Ma, Kerui Geng
arXiv · arXiv q-fin · 2026
Credit risk models are a critical decision-support tool for financial institutions, yet tightening data-protection rules (e.g., GDPR, CCPA) increasingly prohibit cross-border sharing of borrower data, even as these models benefit from cross-institution learning. Traditional default prediction suffers from two limitations: binary classification ignores default timing, treating early defaulters (high loss) equivalently…
Sultan Amed, Tanmay Sen, Sayantan Banerjee
arXiv · arXiv q-fin · 2025
We introduce Tail-Safe, a deployability-oriented framework for derivatives hedging that unifies distributional, risk-sensitive reinforcement learning with a white-box control-barrier-function (CBF) quadratic-program (QP) safety layer tailored to financial constraints. The learning component combines an IQN-based distributional critic with a CVaR objective (IQN--CVaR--PPO) and a Tail-Coverage Controller that regulates…
Jian'an Zhang
arXiv · arXiv q-fin · 2024
We use granular regulatory data on euro interest rate swap trades between January 2021 and June 2023 to assess whether derivative positions of Italian banks can offset losses on their debt securities holdings should interest rates rise unexpectedly. At the aggregate level of the banking system, we find that a 100-basis-point upward shift of the yield curve increases on average the value of swaps by 3.65% of Common Eq…
Michele Leonardo Bianchi, Dario Ruzzi, Anatoli Segura
arXiv · arXiv q-fin · 2020
Monthly disaggregated US data from 1978 to 2016 reveals that exposure to news on inflation and monetary policy helps to explain inflation expectations. This remains true when controlling for household personal characteristics, perceptions of government policy effectiveness, future interest rates and unemployment expectations, and sentiment. We find an asymmetric impact of news on inflation and monetary policy after 1…
Ben Zhe Wang, Jeffrey Sheen, Stefan Trück, Shih-Kang Chao, Wolfgang Karl Härdle
arXiv · arXiv q-fin · 2026
Prediction markets are starting to look less like crowd polls and more like electronic markets. The central question is therefore no longer only whether these markets forecast well, but what happens when institutional liquidity enters: do spreads tighten, does price discovery improve, and do those gains actually reach the traders who are slowest to react when information arrives? This paper offers a research design f…
Shaw Dalen
arXiv · arXiv q-fin · 2025
We derive a slippage-aware toxicity condition for on-chain liquidations executed via a constant-product automated market maker (CP-AMM). For a fixed (constant) liquidation incentive $i$, the familiar toxicity frontier $ν< 1/(1+i)$ tightens to $ν< 1/((1+i)λ)$ for a liquidity penalty factor $λ$ that we derive for both the CP-AMM and a generalised form. Using a dynamic health-linked liquidation incentive $i(h) = i(1 - h…
Alexander McFarlane
arXiv · arXiv q-fin · 2025
Islamic equity screening relies on multiple binary rulebooks that often classify the same firm differently. This paper develops a Continuous Shariah Compliance Index (CSCI) on $[0,1]$ that embeds the published business-activity and financial-ratio thresholds of six leading standards in a single transparent measure. Using CRSP/Compustat U.S. equities from 1999-2024 with lagged accounting inputs and monthly portfolio f…
Abdulrahman Qadi, Akash Sharma, Francesca Medda
arXiv · arXiv q-fin · 2020
We study the design of an optimal insurance contract in which the insured maximizes her expected utility and the insurer limits the variance of his risk exposure while maintaining the principle of indemnity and charging the premium according to the expected value principle. We derive the optimal policy semi-analytically, which is coinsurance above a deductible when the variance bound is binding. This policy automatic…
Yichun Chi, Xun Yu Zhou, Sheng Chao Zhuang
arXiv · arXiv q-fin · 2016
We consider a discrete-time approximation of paths of an Ornstein--Uhlenbeck process as a mean for estimation of a price of European call option in the model of financial market with stochastic volatility. The Euler--Maruyama approximation scheme is implemented. We determine the estimates for the option price for predetermined sets of parameters. The rate of convergence of the price and an average volatility when dis…
Sergii Kuchuk-Iatsenko, Yuliya Mishura
arXiv · arXiv q-fin · 2015
In this paper we propose a problem-driven scenario generation approach to the single-period portfolio selection problem which use tail risk measures such as conditional value-at-risk. Tail risk measures are useful for quantifying potential losses in worst cases. However, for scenario-based problems these are problematic: because the value of a tail risk measure only depends on a small subset of the support of the dis…
Jamie Fairbrother, Amanda Turner, Stein Wallace
arXiv · arXiv q-fin · 2014
We present a simple agent-based model of a financial system composed of leveraged investors such as banks that invest in stocks and manage their risk using a Value-at-Risk constraint, based on historical observations of asset prices. The Value-at-Risk constraint implies that when perceived risk is low, leverage is high and vice versa, a phenomenon that has been dubbed pro-cyclical leverage. We show that this leads to…
Christoph Aymanns, J. Doyne Farmer