The frontier of quantitative finance, in one feed. The newest peer-review-bound research from arXiv’s q-fin archive — trading and market microstructure, portfolio management, risk, pricing, and machine learning in markets — with titles, authors, and abstracts, linked straight to source. Updated continuously.
Derivatives, options, and asset pricing models.
math.NAq-fin.CPq-fin.PR2d ago
Andrey Itkin, Rakhymzhan Kazbek
A companion paper \cite{ItkinDF2026} introduced the Diagonal Frog (DF) positivity-preserving schemes for anisotropic Fokker--Planck equations, advancing each directional substep by a Krylov-computed matrix exponential, which dominates the cost. Replacing that exponential by a rational map $r(γL)$ reduces the substep to a banded solve, but…
Pricing of Securities5d ago
Dongdong Hu, Hasanjan Sayit, Steve Tchoneteck, Frederi Viens
Basket options are difficult to value under correlated lognormal dynamics because weighted sums and differences of lognormal variables have no tractable distribution. This paper develops a probability-based four-moment framework that separates the exact pricing representation from the distributional approximation. A change of measure firs…
Computational Financeq-fin.MFq-fin.PR6d ago
Andrey Itkin
The Marketron model of \cite{HalperinItkin2025Mark} and its option pricing extension in \cite{HalperinItkinMarketron2} suffer from structural non-identifiability: an eighteen-parameter space traps solvers in suboptimal local minima and renders economic quantities unmeasurable. By removing exact scaling gauges and sign symmetries, freezing…
Mathematical Financeq-fin.PRq-fin.ST6d ago
Lucas Carvalho
Hedge ratios, factor models and diversified portfolios all rest on an estimate of which firms move together. That estimate is not stable: firms migrate between the groupings the market treats as coherent, and when enough migrate the organizing axes of the cross-section turn. We measure the rate of that turning as the mean squared sine of …
Pricing of Securitiesq-fin.MF7d ago
Peter Carr, Stephan Sturm
We consider the question of the optimal timing of the sale of an asset with stochastic dynamics. Our analysis is based on the method of the distribution builder introduced by Sharpe, Goldstein and Blythe [SGB00] for the purpose of optimal portfolio selection. Instead of specifying a utility function or risk aversion coefficient, this tool…
Computational Financeq-fin.PR8d ago
Lucas Arenstein, Michael Kastoryano
This paper considers European multi-asset option pricing under Lévy and affine characteristic-function models. The main obstruction is the curse of dimensionality: direct multidimensional COS pricing forms tensor-product coefficient arrays whose size grows exponentially with the number of assets. We study and extend COS-TT-CHF, a low-rank…
Pricing of Securitiesq-fin.MF9d ago
Li Chen, Liang Wang, Weixuan Xia
We propose a novel valuation framework for contingent convertible (CoCo) bonds based on the issuing bank's Common Equity Tier 1 (CET1) ratio, which is widely acknowledged as an indicator of a bank's solvency. Our approach develops a bivariate jump-diffusion model that captures the dynamic relationship linking the CET1 ratios, share prices…
math.PRq-fin.CPq-fin.PR13d ago
Jerome Detemple, Yerkin Kitapbayev, Danila Shabalin
Using the local time-space calculus of Peskir (2005) and the method developed in Mijatovic (2010), we derive a new integral representation for the distribution of the first-passage time (FPT) of a diffusion process through a time-dependent barrier. We present a complete three-step numerical algorithm: first, the problem is reduced to a Vo…
Pricing of Securities15d ago
Teemu Pennanen, Waleed Taoum
Thousands of SOFR derivatives are available in exchanges and OTC, but the market remains illiquid and incomplete. Such a market is beyond the scope of classic risk-neutral approaches that imply linear pricing rules and, at best, approximate hedging strategies whose hedging error may be difficult to quantify. This paper develops an indiffe…
Pricing of Securitiesq-fin.GNq-fin.RM21d ago
Sidharth Mallik, Anastasios Megaritis, Waymond Rodgers
The impact of web datasets on market prices has suggested the development of new sources of information, such as social media and web portals, indicating the possibility of an emergent phenomenon. We propose a defining perspective, termed open information, that adds to the existing types of public and private information. We demonstrate t…
Trading & Market Microstructureq-fin.PR21d ago
Daojing Zhai
Informed traders are supposed to need anonymity: they profit by hiding among the uninformed. A decentralized exchange now publishes the counterparty. Every committed order, cancellation, rejection, and fill carries a persistent pseudonymous wallet address. We reconstruct the full-depth limit order book from a record of 17.1 billion messag…
Mathematical Financeq-fin.PR22d ago
Robert Jarrow, Jayen Tan
Fractional Brownian motion (fBm) exhibits attractive features for financial modeling, including long-range dependence, path roughness, and anomalous diffusion. However, its non-semimartingale nature precludes the use of conventional no-arbitrage approaches to option pricing. We address this limitation by introducing a time-changed fBm, ob…
Mathematical Financeq-fin.PR24d ago
Nicola F. Zaugg, Lech A. Grzelak
We propose the VIX-derived volatility (VDV) model, a VIX-first framework for joint SPXVIX modeling. In the model, we define explicit dynamics for the VIX process to price VIX futures and options, yielding a VIX-side calibration that is independent of the SPX dynamics. Using the rolling-window definition of the VIX, we then derive a coupli…
Pricing of Securities26d ago
Wanling Rudkin
Competing ESG rating providers reward different portfolio attributes. This paper models funds that choose portfolios and fees for investors with heterogeneous ESG priorities. Portfolio changes can improve both providers' scores or favour one methodology over the other, and investor demand determines which methodology each fund targets. Gr…
cs.LGq-fin.CPq-fin.PR28d ago
Lennon J. Shikhman, Michael Galarnyk, Aadi Dash, Nicholas A. Welsh
Accurate option prices do not imply accurate recovery of the latent risk-neutral density. We study this distinction with two complementary benchmarks. A controlled benchmark exposes simulator-truth densities for latent evaluation, while a chronological NIFTY benchmark tests only held-out market prices. A two-component lognormal mixture ha…
Computational Financeq-fin.MFq-fin.PR29d ago
Zhipeng Huang, Cornelis W. Oosterlee
We develop an analytic Fourier cosine (COS) method for the valuation of compound options. By deriving closed-form expressions for the cosine coefficients at all compound stages, the proposed method eliminates the need for numerical quadrature in intermediate exercise stages while retaining the convergence properties of the underlying COS …
Risk Managementq-fin.CPq-fin.PR29d ago
Takayuki Sakuma
Hedging a derivative position under transaction costs and market frictions requires a trading rule that adapts to changing conditions. Deep hedging trains a neural policy for this task but policy training does not determine whether a trading desk can afford to run the policy. We apply robust hedging valuation adjustment (HVA) as a post-tr…
Pricing of Securities1mo ago
Alexander S. Ushakov, Yury N. Berdinsky
We apply the Henstock--Kurzweil (HK) gauge integral to the Black--Scholes model of option pricing and obtain the European call price directly from a Gaussian cylindrical kernel, without stochastic calculus. Under the risk- neutral measure, the log-price is a Brownian motion with drift nu = r - sigma^2/2. Its transition density is the Gaus…
Pricing of Securitiesq-fin.MF1mo ago
Félix B. Tambe-Ndonfack
We develop a structural credit-risk model under incomplete information in which investors observe firm value only indirectly through noisy market signals and scheduled corporate disclosures. While disclosure dates are known in advance, their informational content is random, leading to stochastic discontinuities in the observation process.…
Pricing of Securities1mo ago
Junchi Shen
Do quantum kernels improve cross-sectional stock return prediction? We run a controlled horse race on the Chinese A-share market in which a quantum fidelity kernel, a projected quantum kernel, and a classical RBF control share identical training subsamples, solver, and tuning budgets, so that only the kernel is exchanged. On the main eval…
Computational Financeq-fin.PR1mo ago
Federico Aluigi, Lucia Caramellino, Paolo Pigato, Edoardo Scrima
The Gasoil options market is illiquid, making it difficult to construct its implied volatility surface directly. However, it is closely linked to the highly liquid Brent options market. In this paper, we jointly model Brent and Gasoil futures prices through a correlated Bachelier local volatility model: the Brent factor is described by a …
Mathematical Financeq-fin.PR1mo ago
Masashi Sekine
We study equilibrium price formation in an incomplete financial market with a large population of agents, where stock prices are subject to a single-default event. Agents are assumed to be heterogeneous in their risk aversion and terminal liabilities, and maximize exponential utility of terminal net wealth. We first characterize each agen…
Pricing of Securities1mo ago
Federico M. Bandi, Yinan Su
Compute (computing power) is a scarce, capital-intensive input at the center of the AI economy. Compute capital expenditure and service flow already exceed 1% of U.S. GDP and are growing rapidly. The price of compute reflects uncertainty over AI adoption. The announced launch of compute futures turns this uncertainty into a tradable risk,…
Pricing of Securitiesq-fin.MFq-fin.ST1mo ago
Mohammad Abedi
Standard models of stock price dynamics and option valuation usually begin by postulating stochastic processes. This paper develops an entropic inference framework that derives these processes from information constraints. The key symmetry is that markets reward returns rather than price levels, which selects log price as the dynamical va…
General Financeq-fin.CPq-fin.PR1mo ago
Useong Shin
I propose a cap-axis zero-alpha diagnostic for factor-model evaluation. Whole-stock capitalization prefixes are paired with equal realized exposure to the aggregate market, producing a bridge-alpha curve that localizes pricing errors within the market. Finite-grid HAC-Gaussian inference and residual-block calibration provide size-controll…
Pricing of Securitiesq-fin.MFq-fin.TR1mo ago
Chris Angstmann, Tim Gebbie
We derive an operational-time variance kernel for a latent-order-book reaction boundary and use it to separate three objects usually collapsed in calendar-time volatility models: a structural boundary cumulant, a clock projection, and a pricing-measure choice. The reaction boundary is the zero of a bid--ask imbalance field. For a locally …
Pricing of Securities1mo ago
Nicola Bartolini, Silvia Romagnoli, Amia Santini
Power Purchase Agreements (PPAs) are bilateral over-the-counter contracts central to renewable energy financing. While their capacity to stabilise revenues and hedge price risk is well recognised, their OTC structure exposes both parties to counterparty credit risk. This is a dimension yet to be explored in the literature, particularly gi…
Pricing of Securities1mo ago
Nicola Bartolini, Silvia Romagnoli, Amia Santini
Renewable Power Purchase Agreements have become increasingly important instruments for supporting the energy transition, as they offer revenue stability to renewable energy producers and price certainty to electricity consumers. This paper develops a financial framework for the valuation and risk assessment of fixed-price renewable PPAs. …
General Financeq-fin.CPq-fin.MF1mo ago
Useong Shin
I propose a cap-axis zero-alpha diagnostic for factor-model evaluation. Whole-stock capitalization prefixes are paired with equal realized exposure to the aggregate market, producing a bridge-alpha curve that localizes pricing errors within the market. Finite-grid HAC-Gaussian inference and residual-block calibration provide size-controll…
econ.EMq-fin.PRq-fin.ST1mo ago
Irene Aldridge
We estimate Kyle's (1985) price-impact coefficient $λ$ directly from daily equity order flow and test its ability to forecast the cross-section of subsequent stock returns. Using CRSP data from 2020 to 2025, we construct firm-month measures of signed order flow and two estimators of $\hatλ_{it}$: a within-month price-impact regression and…
Pricing of Securities1mo ago
Asef Yılkı
This paper proposes a novel asset pricing framework that augments large language model (LLM) embeddings of annual report disclosures with supply chain knowledge graph (KG) propagation. Using FinBERT embeddings of 10-K MD&A sections for 255 S&P 500 firms over 2011-2025, two sets of return predictors are constructed: direct LLM embeddings a…
Computational Financeq-fin.MFq-fin.PR2mo ago
Leif Andersen, Andrey Itkin, Rakhymzhan Kazbek
A flexible forward (FF) is a customized FX hedging instrument that guarantees a fixed exchange rate while letting the holder choose the delivery date within a pre-agreed window. It is therefore an American-style option on timing, and its valuation must respect the volatility skew of the underlying currency pair. We price FF contracts (and…
Pricing of Securities2mo ago
Elisa Alòs, Òscar Burés
In this paper, we present a numerical method for option pricing and the computation of Greeks under stochastic volatility Bachelier-type models, based on elementary linear algebra. The method allows option prices and Greeks to be computed for infinitely many strikes (within a range of convergence) by evaluating only a finite number of exp…
Trading & Market Microstructureq-fin.PMq-fin.PR2mo ago
Yoonsik Hong, Diego Klabjan
Commodity futures can be represented hierarchically, with underlying assets at the upper level and individual futures contracts at the lower level. Entities at each level can be connected by edges reflecting inherent correlations, with cross-level edges capturing contract-to-underlying asset connections. Building on our observations of th…
math.NAq-fin.CPq-fin.PR2mo ago
Andrey Itkin
The Fokker-Planck equation is fundamental to statistical mechanics, yet in settings with multiple state variables, anisotropic (cross-) diffusion, and jumps, conventional discretizations frequently produce non-physical negative probability densities. Building on the operator approach of "A. Itkin, Pricing derivatives under Levy models. Mo…
Computational Financeq-fin.PR2mo ago
Emiliano Papa
In this paper, we consider pricing a Bermudan swaption with a small number of exercise dates. We begin with the case of two exercise dates. In this limit, we show that the Bermudan price decomposes into the sum of short-dated European swaptions, setting an upper bound, minus a correction term. This correction is expressed as an integral i…
Pricing of Securities2mo ago
Vittorio Astarita, Giuseppe Guido, Sina Shaffiee Haghshenas, Sami Shaffiee Haghshenas
Intelligent transportation systems increasingly rely on decentralized mechanisms to allocate limited resources such as freight capacity, warehouse availability, charging infrastructure, and network bandwidth. Efficient allocation requires pricing mechanisms that adapt dynamically to demand while preserving system stability. This paper inv…
General Financeq-fin.PR2mo ago
Useong Shin
Factor-model performance depends not only on the model but also on how test assets are constructed. We form characteristic-unsorted random portfolios from a broad CRSP universe and vary stock selection, initial weighting, holding, and rebalancing. Rankings shift materially: buy-and-hold favors FF5 and FF6, whereas daily constant-weighting…
cs.LGq-fin.CPq-fin.PR2mo ago
Cosmin Borsa, Michael Ludkovski
Simulation based solvers for optimal stopping problems must discretize the stopping decision. Under classical dynamic programming, a coarse exercise grid with only a few stopping opportunities can materially undervalue the optimal expected reward, whereas on a very fine grid, approximation errors accumulate through the backward recursion.…
Mathematical Financeq-fin.PR2mo ago
Santiago Garcia
We construct a lifted local Lie groupoid formulation of the Heston stochastic-volatility model and use it to give a geometric interpretation of its affine-transform structure. The construction extends the Group Quantization framework previoulsy applied to quadratic financial diffusion models. The purpose of this paper is not to propose a …
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