New papers on Finance
27 new papers on finance in the last 7 days, within Economy & society. These are the 27 Pipette rates most worth reading, with the main result in the authors' own words.
The best of the week
Prediction Markets Beat the Weather Forecast on Tomorrow's High Temperature
In six of the seven cities we study, the market beats the most accurate single public forecast, the National Blend of Models (NBM).
PreprintBroad interestEasy to readDo Female Directors Raise ESG Ratings? A Meta-Analysis
Board gender diversity may be well worth pursuing on its own merits, but the evidence that it reliably raises ESG scores is weaker than the published record suggests.
PreprintHedging El Niño isn’t the same as adapting to it
But hedging is not the same as adapting.
Peer-reviewed journalBroad interestEasy to readAdapting the Actor Model of Concurrency for High-Frequency Trading: Synchronous Message Delivery (fast_send) and a Tick-to-Book Latency Study
This paper argues the dismissal is wrong for co-located actors, and supports it both analytically and with a deployed, measured implementation: kaspar-hft, an open-source C++20 framework.
PreprintReal-world useTarget alignment, dilution and forecast selection when cross-sectional forecasts share a common target
We show that every standardized forecast splits exactly into a component aligned with this common target and a component uncorrelated with it.
PreprintFirm Valuation When AI Shapes the Business Model: A Milestone-Based Real-Options Framework for the AI Valuation Uncertainty Problem
A milestone-gated real-options overlay decomposes milestone state value into five components, and an Analytic Hierarchy Process-based Success Readiness Index derives per-option probabilities from structured pairwise comparisons for scenario analysis.
Preprint with a published versionRare States and Long-Run Pricing
Moreover, a claim's price depends only on its pricing corridor---the classes of states lying on directed paths from the initial state to states where the payoff is positive---and the highest class-specific pricing rate within this corridor determines the claim's long-run pricing rate.
PreprintOptimal Investment and Consumption in Financial Markets with Integrated Variance Clocks
We characterize the value process and optimal investment and consumption strategies in terms of a non-linear infinite-horizon backward stochastic differential equation driven jointly by calendar time and the stochastic clock.
PreprintDesign and pricing of a transparent parametric-modeled loss CAT bond: application to German windstorm
As our main contributions we propose a trigger mechanism which is entirely transparent and simpler to evaluate compared to indemnity modeling techniques, as well as a methodology to price this cat bond.
PreprintUniversal Diffusion Models for Implied Volatility Surfaces: Learning Shared Dynamics Across Stocks
Across in-sample and out-of-sample stocks, our diffusion model outperforms the VolGAN benchmark in reducing arbitrage violations, improving stock risk prediction, and aligning explained variance ratios by the first three principal components.
PreprintThe Conversation Turns First: Crowd Discussion and Price Reversals in Prediction Markets
They establish predictive associations consistent with discussion and trading responding to shared information, without identifying a causal effect of comments on markets.
PreprintLoss Choice or Model Choice? The Role of Forecast Level in Cryptocurrency Volatility Forecasting
Our contribution is a comprehensive evaluation of loss and model choice that shows why losses can appear so influential in raw comparisons and how this interpretation changes when forecast level and downstream risk are considered explicitly.
PreprintActive Portfolio Management in Concentrated Equity Markets
In out-of-sample backtests from 1995 to 2024, the resulting strategies deliver higher cumulative net returns than both the equal-weighted and market portfolios, and higher information ratios than the equal-weighted portfolio after 15-basis-point proportional transaction costs.
PreprintThe "Rough" HAR Model
Augmenting the autoregressive (AR) and heterogeneous autoregressive (HAR) models with a first-order moving-average (MA(1)) component therefore approximates the roughness, and the MA coefficient maps almost linearly into the Hurst parameter.
PreprintExtremal Mean-Variance Functionals over Wasserstein Balls: Applications to Risk Sharing
We characterize the worst- and best-case values of a mean-variance functional over a 2-Wasserstein ball.
PreprintNested Clustered Optimization Is One End of a Schur Bridge, and the Interior Is Sometimes Provably Better
Under estimation error the optimal can be strictly interior and full coupling can remain optimal, and we give the local theorem at the minimum-variance end with exact examples of both, including a symmetric family in which the optimum is a closed form.
PreprintSurface-Driven Stochastic Volatility for Commodity Options: Identification of Stochastic Vol-of-Vol and Leverage from Smile Dynamics
Overall, the results support the use of level, skew, and convexity jointly as dynamic inputs for commodity-option pricing and model diagnostics.
PreprintAsymptotic Invariance of Kelly Allocation Under Power-Law Asset Dynamics: Evidence from Bitcoin
The results identify the conditions under which log-optimal allocation can remain stable under non-stationary power-law asset dynamics and clarify the assumptions required when applying this result to Bitcoin.
PreprintRisk Measures under Paired-Ambiguity: A Deep Learning Reflected BSDE Framework
We introduce a paired ambiguity framework combining Girsanov model uncertainty with cash subadditive risk evaluation and characterize the stopping value by an upper reflected backward stochastic differential equation (BSDE).
PreprintAffine Pricing Models from Group Quantization and Holonomy
The contribution is structural: AHGQ gives a common geometric origin to the coordinate and transform representations of continuous-path, time-homogeneous affine pricing models.
PreprintLiquidity Provision and Rebate Design in Option Markets
We provide a model for the nested optimisation problem of market making and rebate design problems in option markets and find optimal strategies.
PreprintEfficient simulation schemes for pricing options under the Ornstein--Uhlenbeck driven stochastic volatility model
We develop an efficient Monte Carlo simulation scheme for pricing options under the Ornstein-Uhlenbeck driven stochastic volatility model via the operator splitting approach.
Preprint with a published versionStochastic Mortality Model with Fractional L\'evy Dynamics
This paper addresses the modelling of stochastic mortality via a mixture of a fractional L\'evy process and standard Brownian motion.
PreprintBold claims, read criticallySimulation of stochastic volatility models via operator splitting schemes
We propose a general framework of constructing efficient and reliable simulation schemes for stochastic volatility models via the Strang operator splitting approximation.
Preprint with a published versionBold claims, read criticallyEquilibrium prices under hidden Markov fundamentals
We allow the price-dividend ratio to contain an additional positive, absolutely continuous valuation factor and, within the class defined below and under the regularity, admissibility, and positivity conditions of our main theorem, equilibrium forces this factor to be constant, yielding belief-Markovian prices.
PreprintModeling interest rate swap volatility with GARCH processes
MSGARCH mitigates this issue by keeping regime-specific parameters stable and capturing time variation through filtered regime probabili- ties.
PreprintMarket Completeness and Optional Projections under Restricted Information
For a fixed projection, every claim measurable with respect to its terminal price history is attainable precisely when all equivalent martingale measures of that fixed process agree on the claim sigma-field.
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