We develop a theory of securities price formation and dynamics based on quantum approach and without presuming any similarities with quantum mechanics. Disorder introduced by trading environment leads to probability distribution of returns that is not a smooth curve, but a speckle-pattern fluctuating in both price coordinate and time. This means that any given return can at times acquire a substantial probability of occurring while remaining low on average in time. Still, due to local character of order interaction during price formation the distribution width grows smoothly, has a minimum value at small time scale and a square root behavior at large time scale. Examples of calibration to market data, both intraday and daily, are provided.
Quantum theory of securities price formation in financial markets. (arXiv:1605.04948v1 [q-fin.TR])
Extended nonlinear feedback model for describing episodes of high inflation. (arXiv:1605.04945v1 [q-fin.ST])
An extension of the nonlinear feedback (NLF) formalism to describe regimes of hyper- and high-inflation in economy is proposed in the present work. In the NLF model the consumer price index (CPI) exhibits a finite time singularity of the type $1/(t_c -t)^{(1- \beta)/\beta}$, with $\beta>0$, predicting a blow up of the economy at a critical time $t_c$. However, this model fails in determining $t_c$ in the case of weak hyperinflation regimes like, e.g., that occurred in Israel. To overcome this trouble, the NLF model is extended by introducing a parameter $\gamma$, which multiplies all therms with past growth rate index (GRI). In this novel approach the solution for CPI is also analytic being proportional to the Gaussian hypergeometric function $_2F_1(1/\beta,1/\beta,1+1/\beta;z)$, where $z$ is a function of $\beta$, $\gamma$, and $t_c$. For $z \to 1$ this hypergeometric function diverges leading to a finite time singularity, from which a value of $t_c$ can be determined. This singularity is also present in GRI. It is shown that the interplay between parameters $\beta$ and $\gamma$ may produce phenomena of multiple equilibria. An analysis of the severe hyperinflation occurred in Hungary proves that the novel model is robust. When this model is used for examining data of Israel a reasonable $t_c$ is got. High-inflation regimes in Mexico and Iceland, which exhibit weaker inflations than that of Israel, are also successfully described.
Stochastic Effects in a Discretized Kinetic Model of Economic Exchange. (arXiv:1605.04943v1 [q-fin.GN])
Linear stochastic models and discretized kinetic theory are two complementary analytical techniques used for the investigation of complex systems of economic interactions. The former employ Langevin equations, with an emphasis on trade; the latter is based on systems of ordinary differential equations and is better suited for the description of binary interactions, taxation and welfare redistribution. We propose a new framework which establishes a connection between the two approaches by introducing stochastic effects into the kinetic model based on Langevin and Fokker-Planck formalisms. Numerical simulations of the Langevin model indicate positive correlations between the Gini index and the total wealth, that suggests a growing inequality with increasing income. Complementary analysis shows a simultaneous decrease in inequality as social mobility increases in presence of a conserved total wealth, in conformity with economic expectations.
Mortgages and Refinancing. (arXiv:1605.04941v1 [q-fin.PR])
In general, homeowners refinance in response to a decrease in interest rates, as their borrowing costs are lowered. However, it is worth investigating the effects of refinancing after taking the underlying costs into consideration. Here we develop a synthetic mortgage calculator that sufficiently accounts for such costs and the implications on new monthly payments. To confirm the accuracy of the calculator, we simulate the effects of refinancing over 15 and 30 year periods. We then model the effects of refinancing as risk to the issuer of the mortgage, as there is negative duration associated with shifts in the interest rate. Furthermore, we investigate the effects on the swap market as well as the treasury bond market. We model stochastic interest rates using the Vasicek model.
Value-at-Risk: The Effect of Autoregression in a Quantile Process. (arXiv:1605.04940v1 [q-fin.RM])
Value-at-Risk (VaR) is an institutional measure of risk favored by financial regulators. VaR may be interpreted as a quantile of future portfolio values conditional on the information available, where the most common quantile used is 95%. Here we demonstrate Conditional Autoregressive Value at Risk, first introduced by Engle, Manganelli (2001). CAViaR suggests that negative/positive returns are not i.i.d., and that there is significant autocorrelation. The model is tested using data from 1986- 1999 and 1999-2009 for GM, IBM, XOM, SPX, and then validated via the dynamic quantile test. Results suggest that the tails (upper/lower quantile) of a distribution of returns behave differently than the core.
The topology of card transaction money flows. (arXiv:1605.04938v1 [q-fin.GN])
Money flow models are essential tools to understand different economical phenomena, like saving propensities and wealth distributions. In spite of their importance, most of them are based on synthetic transaction networks with simple topologies, e.g. random or scale-free ones, as the characterisation of real networks is made difficult by the confidentiality and sensitivity of money transaction data. Here we present an analysis of the topology created by real credit card transactions from one of the biggest world banks, and show how different distributions, e.g. number of transactions per card or amount, have nontrivial characteristics. We further describe a stochastic model to create transactions data sets, feeding from the obtained distributions, which will allow researchers to create more realistic money flow models.
OCC Responds To S&P Announcement On Credit Rating Watch
OCC, the world’s largest equity derivatives clearing organization, today issued the following statement in response to Standard and Poor’s (S&P) announcement that OCC’s credit rating has been placed on CreditWatch with negative implications as S&P further refines its methodology for rating central counterparties (CCPs) globally.
read more...CME Group Declares Dividend
CME Group Inc., the world's leading and most diverse derivatives marketplace, today declared a second-quarter dividend of $0.60 per share, payable June 27, 2016, to shareholders of record as of June 10, 2016.
Remarks At The Financial Accounting Foundation Board Of Trustees Dinner, Richard G. Ketchum, Chairman And Chief Executive Officer, FINRA, Washington, DC, May 17, 2016
Dalian Commodity Exchange Cancels The Preferential Policies On Intra-day Trading Fees Of Soybean Meal And Other Futures Products
On May 12, Dalian Commodity Exchange (DCE) issued a notice to announce that starting from the trading on May 16 (the after-hours trading session on the evening of May 13), the preferential policies on intra-day trading (the intra-day short-swing trading) fees for the futures products of Soybean Meal, Corn Starch, Soybean Oil and RBD Palm Olein will be cancelled, which means their fees will be no longer halved, and the intra-day trading fees of Soybean Meal and Corn Starch shall be restored to the original level of RMB 1.5 / contract, with those of Soybean Oil and RBD Palm Olein reverting to the original RMB 2.5 / contract. The cancellation is for the purpose of preventing from the overheated short-swing trading in advance and the contagious risks from the international markets.
New: Local Volatility Under Stochastic Interest Rates Using Mixture Models
New Zealand: Market Wobbles Dent Confidence But Investors Are Positive About Regulation
Confidence in New Zealand’s markets fell slightly in the last 12 months to 56% this year from 60% in 2015, following a year of uncertainty and turmoil in the markets. Confidence is higher among investors, with 59% of those with investments expressing confidence in the markets.
read more...FSB Names Additional Members Of The Task Force On Climate-Related Financial Disclosures
The Financial Stability Board (FSB) today announced the names of additional members of the Task Force on Climate-related Financial Disclosures (TCFD) for phase 2 of the work of the Task Force. The Task Force, which was created in December, is developing voluntary, consistent climate-related financial disclosures for use by companies in providing information to lenders, insurers, investors and other stakeholders. More effective disclosures will help to reduce financial stability risks by avoiding an abrupt repricing of financial assets as the impact of climate change becomes clearer.
read more...TradingScreen Announces Leadership Changes
TradingScreen, the leading independent provider of liquidity, trading, and investment technology via SaaS, announced the creation of an Executive Committee consisting of three long time Board members, Piero Grandi, Pierre Schroeder and Robert Trudeau, to oversee the operations of the Company. Grandi has been elected Chairman of the Board and effective immediately, Schroeder will serve as CEO during Co-founder Philippe Buhannic’s leave of absence.
read more...Weekly Top 5 Papers â May 20, 2016
1. Threats to Racial Status Promote Tea Party Support Among White Americans by Robb Willer (Stanford University) and Matthew Feinberg (University of Toronto) and Rachel Wetts (University of California, Berkeley)
read more...Federal Reserve Governor Daniel K. Tarullo At The National Association Of Insurance Commissionerâs International Insurance Forum, Washington, D.C., May 20, 2016, Insurance Companies And The Role Of The Federal Reserve
It is a pleasure to be here with you this morning to discuss the statutory role of the Federal Reserve in supervising and regulating insurance firms. Since we inherited from the Office of Thrift Supervision the oversight of savings and loan holding companies (SLHCs) that contain insurance companies, we have looked at our role as complementing the role you--as insurance regulators--play. We value the interaction we have had with state insurance commissioners on policy matters and are pleased with the growth of ongoing, regularized cooperation in supervising the firms over which we both have oversight authority. Personally, I have profited enormously from the assistance provided by the staff of the National Association of Insurance Commissioners (NAIC) as I delved into the history and practice of capital regulation of insurance companies.
read more...Malawi Stock Exchange Weekly Trading Report - 20 May, 2016
Click here to download Malawi Stock Exchange's weekly trading report for the week ending 20 May, 2016
Keynote Address Investment Company Institute 2016 General Meeting, SEC Chair Mary Jo White, Washington, DC, May 20, 2016
Bermuda Stock Exchange Will Be Closed For Bermuda Day Holiday
The Bermuda Stock Exchange (“BSX”) advises that the Exchange will be closed on Tuesday, 24 May, 2016, in observance of the Bermuda Day Public Holiday. The BSX will re-open on Wednesday, 25 May, 2016.
read more...EEX New Participant: TINMAR ENERGY S.A.
TINMAR ENERGY S.A. has been admitted to exchange trading for Phelix Futures/Options, French Financial Power Futures/Options, Italian Financial Power Futures/Options, Nordic Financial Power Futures/Options, Spanish Financial Power Futures/Options, Swiss Financial Power Futures, Belgian Financial Power Futures, Dutch Financial Power Futures, UK Financial Power Futures, Greek Financial Power Futures, Romanian Financial Power Futures and German Intraday Cap Futures.