Pub Date : 2023-02-04DOI: 10.1142/s0219024923500024
Jiang Ye, Yiwei Wang, Muhammad Wajid Raza
{"title":"Bounded Strategies for Maximizing the Sharpe ratio","authors":"Jiang Ye, Yiwei Wang, Muhammad Wajid Raza","doi":"10.1142/s0219024923500024","DOIUrl":"https://doi.org/10.1142/s0219024923500024","url":null,"abstract":"","PeriodicalId":47022,"journal":{"name":"International Journal of Theoretical and Applied Finance","volume":" ","pages":""},"PeriodicalIF":0.5,"publicationDate":"2023-02-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44266697","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2022-12-22DOI: 10.1142/s0219024923500012
Hans‐Peter Bermin, M. Holm
{"title":"Kelly Trading and Market Equilibrium","authors":"Hans‐Peter Bermin, M. Holm","doi":"10.1142/s0219024923500012","DOIUrl":"https://doi.org/10.1142/s0219024923500012","url":null,"abstract":"","PeriodicalId":47022,"journal":{"name":"International Journal of Theoretical and Applied Finance","volume":" ","pages":""},"PeriodicalIF":0.5,"publicationDate":"2022-12-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"47934059","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2022-12-14DOI: 10.1142/s0219024922500315
Shasikanta Naindebam, M. Raybaudi, M. Solá
{"title":"Optimal Investment in interrelated Projects","authors":"Shasikanta Naindebam, M. Raybaudi, M. Solá","doi":"10.1142/s0219024922500315","DOIUrl":"https://doi.org/10.1142/s0219024922500315","url":null,"abstract":"","PeriodicalId":47022,"journal":{"name":"International Journal of Theoretical and Applied Finance","volume":" ","pages":""},"PeriodicalIF":0.5,"publicationDate":"2022-12-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"49386348","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2022-12-11DOI: 10.1142/s0219024923500061
Y. Akama
Given an $N$-dimensional sample of size $T$ and form a sample correlation matrix $mathbf{C}$. Suppose that $N$ and $T$ tend to infinity with $T/N $ converging to a fixed finite constant $Q>0$. If the population is a factor model, then the eigenvalue distribution of $mathbf{C}$ almost surely converges weakly to Marv{c}enko-Pastur distribution such that the index is $Q$ and the scale parameter is the limiting ratio of the specific variance to the $i$-th variable $(itoinfty)$. For an $N$-dimensional normal population with equi-correlation coefficient $rho$, which is a one-factor model, for the largest eigenvalue $lambda$ of $mathbf{C}$, we prove that $lambda/N$ converges to the equi-correlation coefficient $rho$ almost surely. These results suggest an important role of an equi-correlated normal population and a factor model in (Laloux et al. Random matrix theory and financial correlations, Int. J. Theor. Appl. Finance, 2000): the histogram of the eigenvalue of sample correlation matrix of the returns of stock prices fits the density of Marv{c}enko-Pastur distribution of index $T/N $ and scale parameter $1-lambda/N$. Moreover, we provide the limiting distribution of the largest eigenvalue of a sample covariance matrix of an equi-correlated normal population. We discuss the phase transition as to the decay rate of the equi-correlation coefficient in $N$.
{"title":"Correlation matrix of equi-correlated normal population: fluctuation of the largest eigenvalue, scaling of the bulk eigenvalues, and stock market","authors":"Y. Akama","doi":"10.1142/s0219024923500061","DOIUrl":"https://doi.org/10.1142/s0219024923500061","url":null,"abstract":"Given an $N$-dimensional sample of size $T$ and form a sample correlation matrix $mathbf{C}$. Suppose that $N$ and $T$ tend to infinity with $T/N $ converging to a fixed finite constant $Q>0$. If the population is a factor model, then the eigenvalue distribution of $mathbf{C}$ almost surely converges weakly to Marv{c}enko-Pastur distribution such that the index is $Q$ and the scale parameter is the limiting ratio of the specific variance to the $i$-th variable $(itoinfty)$. For an $N$-dimensional normal population with equi-correlation coefficient $rho$, which is a one-factor model, for the largest eigenvalue $lambda$ of $mathbf{C}$, we prove that $lambda/N$ converges to the equi-correlation coefficient $rho$ almost surely. These results suggest an important role of an equi-correlated normal population and a factor model in (Laloux et al. Random matrix theory and financial correlations, Int. J. Theor. Appl. Finance, 2000): the histogram of the eigenvalue of sample correlation matrix of the returns of stock prices fits the density of Marv{c}enko-Pastur distribution of index $T/N $ and scale parameter $1-lambda/N$. Moreover, we provide the limiting distribution of the largest eigenvalue of a sample covariance matrix of an equi-correlated normal population. We discuss the phase transition as to the decay rate of the equi-correlation coefficient in $N$.","PeriodicalId":47022,"journal":{"name":"International Journal of Theoretical and Applied Finance","volume":" ","pages":""},"PeriodicalIF":0.5,"publicationDate":"2022-12-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"46252060","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2022-12-07DOI: 10.1142/s0219024922500303
H. Donfack, C. Soh, A. Kotzé
{"title":"Volatility Smile Interpolation with Radial Basis Functions","authors":"H. Donfack, C. Soh, A. Kotzé","doi":"10.1142/s0219024922500303","DOIUrl":"https://doi.org/10.1142/s0219024922500303","url":null,"abstract":"","PeriodicalId":47022,"journal":{"name":"International Journal of Theoretical and Applied Finance","volume":" ","pages":""},"PeriodicalIF":0.5,"publicationDate":"2022-12-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"45914112","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2022-11-01DOI: 10.1142/s0219024922990011
{"title":"Author Index Volume 25 (2022)","authors":"","doi":"10.1142/s0219024922990011","DOIUrl":"https://doi.org/10.1142/s0219024922990011","url":null,"abstract":"","PeriodicalId":47022,"journal":{"name":"International Journal of Theoretical and Applied Finance","volume":" ","pages":""},"PeriodicalIF":0.5,"publicationDate":"2022-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"45995336","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2022-08-31DOI: 10.1142/s0219024922500248
D. Madan, King Wang
At each maturity a discrete return distribution is inferred from option prices. Option pricing models imply a comparable theoretical distribution. As both the transformed data and the option pricing model deliver points on a simplex, the data is statistically modeled by a Dirichlet distribution with expected values given by the option pricing model. The resulting setup allows for maximum likelihood estimation of option pricing model parameters with standard errors that enable the testing of hypotheses. Hypothesis testing is then illustrated by testing for the consistency of risk neutral return distributions being those of a Brownian motion with drift time changed by a subordinator. Models mixing processes of independent increments with processes related to solutions of Ornstein–Uhlenbeck (OU) equations are also tested for the presence of the OU component. Solutions to OU equations may be viewed as processes of perpetual motion responding continuously to their past movements. The tests support the rejection of Brownian subordination and the presence of a perpetual motion component.
{"title":"OPTION SURFACE STATISTICS WITH APPLICATIONS","authors":"D. Madan, King Wang","doi":"10.1142/s0219024922500248","DOIUrl":"https://doi.org/10.1142/s0219024922500248","url":null,"abstract":"At each maturity a discrete return distribution is inferred from option prices. Option pricing models imply a comparable theoretical distribution. As both the transformed data and the option pricing model deliver points on a simplex, the data is statistically modeled by a Dirichlet distribution with expected values given by the option pricing model. The resulting setup allows for maximum likelihood estimation of option pricing model parameters with standard errors that enable the testing of hypotheses. Hypothesis testing is then illustrated by testing for the consistency of risk neutral return distributions being those of a Brownian motion with drift time changed by a subordinator. Models mixing processes of independent increments with processes related to solutions of Ornstein–Uhlenbeck (OU) equations are also tested for the presence of the OU component. Solutions to OU equations may be viewed as processes of perpetual motion responding continuously to their past movements. The tests support the rejection of Brownian subordination and the presence of a perpetual motion component.","PeriodicalId":47022,"journal":{"name":"International Journal of Theoretical and Applied Finance","volume":" ","pages":""},"PeriodicalIF":0.5,"publicationDate":"2022-08-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42864422","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2022-08-12DOI: 10.1142/s0219024922500261
Christopher Lynch, B. Mestel
To assist with the detection of bubbles and negative bubbles in financial markets, a criterion is introduced to indicate whether a market is likely to be in a superexponential regime (where growth in such a regime would correspond to an asset price bubble and decline to an negative bubble) as opposed to “normal” exponential behaviour typified by a constant rate of growth or decline. The criterion is founded on the Johansen-Ledoit-Sornette model of asset dynamics in a bubble and is derived from a linear fit to observed data with a non-linear time transformation with parameters distributed uniformly in their permitted ranges. Making use of expected values rather than the underlying distribution, the criterion is straightforward and efficient to compute and can in principle be applied in real time to intra-day markets as well as longer timescales. In some circumstances, the criterion is shown to have certain predictive qualities when applied to a portfolio of stocks, and could be used as input into algorithmic trading strategies. A simple strategy is described which is based on market reversion predictions of a portfolio of stocks and which in back-testing generates notable returns.
{"title":"A practical algorithm to detect superexponential behaviour in financial asset price returns","authors":"Christopher Lynch, B. Mestel","doi":"10.1142/s0219024922500261","DOIUrl":"https://doi.org/10.1142/s0219024922500261","url":null,"abstract":"To assist with the detection of bubbles and negative bubbles in financial markets, a criterion is introduced to indicate whether a market is likely to be in a superexponential regime (where growth in such a regime would correspond to an asset price bubble and decline to an negative bubble) as opposed to “normal” exponential behaviour typified by a constant rate of growth or decline. The criterion is founded on the Johansen-Ledoit-Sornette model of asset dynamics in a bubble and is derived from a linear fit to observed data with a non-linear time transformation with parameters distributed uniformly in their permitted ranges. Making use of expected values rather than the underlying distribution, the criterion is straightforward and efficient to compute and can in principle be applied in real time to intra-day markets as well as longer timescales. In some circumstances, the criterion is shown to have certain predictive qualities when applied to a portfolio of stocks, and could be used as input into algorithmic trading strategies. A simple strategy is described which is based on market reversion predictions of a portfolio of stocks and which in back-testing generates notable returns.","PeriodicalId":47022,"journal":{"name":"International Journal of Theoretical and Applied Finance","volume":" ","pages":""},"PeriodicalIF":0.5,"publicationDate":"2022-08-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44113468","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2022-08-04DOI: 10.1142/s021902492250025x
Guotai Chi, Ying Zhou, Long Shen, Jian Xiong, Hongjia Yan
{"title":"EFFECT OF THE COMPANY RELATIONSHIP NETWORK ON DEFAULT PREDICTION: EVIDENCE FROM CHINESE LISTED COMPANIES","authors":"Guotai Chi, Ying Zhou, Long Shen, Jian Xiong, Hongjia Yan","doi":"10.1142/s021902492250025x","DOIUrl":"https://doi.org/10.1142/s021902492250025x","url":null,"abstract":"","PeriodicalId":47022,"journal":{"name":"International Journal of Theoretical and Applied Finance","volume":" ","pages":""},"PeriodicalIF":0.5,"publicationDate":"2022-08-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"48206024","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2022-07-29DOI: 10.1142/s0219024922500236
Lukas Muller
{"title":"Optimal portfolio choice with crash and default risk","authors":"Lukas Muller","doi":"10.1142/s0219024922500236","DOIUrl":"https://doi.org/10.1142/s0219024922500236","url":null,"abstract":"","PeriodicalId":47022,"journal":{"name":"International Journal of Theoretical and Applied Finance","volume":"708 ","pages":""},"PeriodicalIF":0.5,"publicationDate":"2022-07-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"41280313","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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