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.
Measuring and managing market, credit, and tail risk.
Trading & Market Microstructureq-fin.MFq-fin.RM3d ago
Ying Chen, Hoa Nguyen, Julian Sester, Hoang Hai Tran +1
We study sequential decision making under evolving uncertainty in high-frequency financial markets, where changing market dynamics continually challenge static decision policies. We show that robustness has two economically meaningful dimensions: uncertainty tolerance, which determines how much uncertainty the decision maker allows, and a…
Risk Management4d ago
Swaraj Gambhir, Thanu George, Kairavi Sivasankar
Markowitz defined portfolio risk as an internal property, built from the covariance among a book's own holdings rather than the distance to any index. Seventy years of simplification reversed that. The market beta of CAPM, the fixed style and industry axes of Barra-type models, and the promotion of benchmark deviation to the definition of…
Risk Management6d ago
Ujjwala Vadrevu
The adoption of non-parametric machine learning models for regulatory capital estimation introduces a fundamental governance challenge: the inability to explain model outputs in a manner auditable by supervisory bodies. This 'black box' problem remains a major barrier to the adoption of Gaussian Process Regression (GPR) and related ML arc…
Risk Management7d ago
Mathias Beiglböck, Silvana M. Pesenti, Maxime Sylvestre
In static risk measurement, law invariance expresses the principle that the risk of a position should depend only on its distribution, and not on the particular probability space on which it is represented. In a dynamic setting, the same principle leads naturally to adapted law invariance: the risk assessment should depend only on the pro…
Risk Management7d ago
Yiqing Wang, Yixin Kang, Luyun Lin, Siqi Mao
The release of SR 26-2 marks a significant modernization of U.S. model risk management by replacing SR 11-7 with a more risk-based and materiality-sensitive supervisory framework. However, generative and agentic AI are excluded, creating an important governance challenge for banking organizations and other financial institutions. Although…
econ.EMq-fin.RM8d ago
Xinxian Chen, Peter Reinhard Hansen, Chen Tong
We propose the Split-Session Cluster GARCH model for heavy-tailed multivariate dependence among asset returns decomposed into overnight and intraday components. The model uses convolution-$t$ distributions to allow tail behavior to differ across clusters defined by trading sessions and, within each session, by economic sectors. It also ac…
Portfolio Managementq-fin.RMq-fin.ST9d ago
William W. Lamptey, Nicholas Appiah, Abootaleb Shirvani, Priscilla Ati-Tay +2
This paper examines portfolio optimization and tail-risk analytics for a heterogeneous universe of actively managed investment funds. Using daily Bloomberg data for 30 funds from 4 December 2020 to 24 December 2025, the study evaluates buy-and-hold, mean--variance, CVaR-based, and tangency-type strategies under long-only and long--short c…
Risk Management12d ago
Anand Deo
Financial stress tests based on handpicked scenarios can mislead risk management by overlooking genuinely dangerous configurations or overemphasising shocks that are too implausible to be decision-relevant. We develop a systematic method for generating plausible stress scenarios for financial losses driven by exogenous risk factors. The m…
econ.THq-fin.RM13d ago
Zijun Meng
This paper proves a sum-minimization characterization of Pareto efficient insurance with multiple policyholders, multiple insurers, and multiple indemnity environments. We also provide a result regarding the pairwise implementability of the policyholder- and insurer-aggregate level arrangements in the multiple policyholders and multiple i…
Risk Management13d ago
Wing Fung Chong
This paper studies how a risk holder should combine self-protection and self-insurance strategies when market insurance is absent. Self-protection reduces loss frequency, while self-insurance reduces loss severity. The risk holder incurs a joint risk-reduction cost that allows technological interaction between the two strategies and evalu…
Risk Managementq-fin.MF13d ago
Corrado De Vecchi, Max Nendel, Steven Vanduffel
We study risk aggregation problems for arbitrary non-decreasing aggregation functions and tail risk measures under dependence uncertainty in a distributionally robust setting. To this end, we introduce the notion of hidden dependence for random vectors, which is built on the concepts of risk concentration and common tail events developed …
cs.LGq-fin.RMq-fin.ST13d ago
Sichao He, Yansong Zhang
In a deep forecasting pipeline for fat-tailed financial returns at short horizons, which matters more - the backbone architecture or the output head? We compare four modern backbones (TimesNet, DLinear, N-BEATS, iTransformer) under three output heads: a point head, a single-Gaussian density head, and a Gaussian mixture density head with K…
Risk Management14d ago
Matthew Francis Dixon
Organizations increasingly use large language models and agentic AI systems to generate probabilistic assessments and candidate actions in high-consequence settings. This creates a managerial problem distinct from prediction: how should organizations allocate decision authority to AI-generated recommendations as evidence quality, uncertai…
econ.EMq-fin.CPq-fin.RM15d ago
Irene Aldridge
We show that net demand for liquidity by algo strategies is identifiable from its trade and price history alone, with no knowledge of its signal or optimization problem. An exact multi-period regret decomposition implies that the sign of this statistic classifies a linear strategy as a net liquidity consumer or provider, recovering the Ky…
Mathematical Financeq-fin.RM15d ago
Benjamin Avanzi, Bernard Wong, Jinxia Zhu
Modern resolution and prudential regimes increasingly wind up a distressed firm not at a single hard threshold but through a graduated, state-dependent process. We study how the design of such a regime shapes the trade-off between shareholder value and financial stability for a firm whose surplus follows a general diffusion. Forced liquid…
Risk Management16d ago
Albert Kutej, Stefan Rass
The consideration of uncertainty is a central but frequently inadequately addressed component of risk management. A systematic treatment of uncertainty is essential for ensuring the quality and traceability of decision-making processes, particularly in complex and safety-critical environments. This review systematically analyzes how estab…
Risk Management17d ago
Ruimeng Hu, Byungdoo Kong
We study endogenous reinsurance pricing in a competitive insurance market with one strategic reinsurer and many heterogeneous insurers. The reinsurer acts as a Stackelberg leader by choosing a common premium rate and an investment strategy, while insurers decide how much risk to retain and how to invest, taking into account their own perf…
Risk Managementq-fin.CP17d ago
Takayuki Sakuma
This paper develops a robust hedging valuation adjustment (HVA) measure for dynamic hedging. Simulated rebalancing and maturity-unwind trades generate a loss distribution for each no-trade-band rule, and we define robust HVA as the worst-case expected loss over a relative-entropy neighborhood of that distribution. Because band width affec…
Portfolio Managementq-fin.RM17d ago
Nicholas Appiah, Ali Jaffri, Dilmi C. W. Hettiachchi-Halpe-Kankanamalage, Svetlozar T. Rachev
This paper examines portfolio optimization for commodity exchange-traded funds (ETFs) under heavy-tailed return behavior. Using daily Bloomberg data for 30 U.S.-listed commodity ETFs from 12 December 2018 to 16 December 2024, we study funds spanning agriculture, energy, metals, and broad commodity index exposure. We compare a passive buy-…
Mathematical Financeq-fin.RM18d ago
Christian Laudagé
Monetary risk measures quantify the risk of uncertain monetary payoffs (or losses), whereas in time series analysis risk is typically assessed using logarithmic returns. Return risk measures (RRMs) provide an axiomatic foundation for this latter approach, which relies crucially on the positive cone of the space of essentially bounded rand…
Statistical Financeq-fin.CPq-fin.RM20d ago
Abdulrahman Alswaidan, Cade Jin, Jeffrey D. Varner
Synthetic generators of daily equity returns let practitioners stress test, backtest, and design scenarios that a single realized market history cannot supply, but only if the generator reproduces the stylized facts of real returns: heavy tails, negligible linear autocorrelation, and slow decay of the absolute-return autocorrelation. Hidd…
Risk Managementq-fin.MF20d ago
Debora Daniela Escobar, Wing Fung Chong
This paper studies centralized risk sharing with endogenous prices. Multiple policyholders transfer risks to a central insurer through indemnity decisions, while prices are determined by pricing functionals applied to ceded risks. The resulting problem is multiobjective, with Pareto optimality as the natural efficiency criterion. We show …
Risk Management20d ago
Yuyu Chen, Liyuan Lin, Ruodu Wang
Value-at-Risk (VaR) is a standard regulatory risk measure, and its failure of subadditivity is well known. Much less appreciated is that for sufficiently heavy-tailed losses, VaR can be superadditive uniformly across all probability levels, a phenomenon strictly stronger than the asymptotic superadditivity studied in extreme value theory.…
Risk Management22d ago
Shintaro Mori, Masato Hisakado
Sectoral default dependence is usually described by a static correlation matrix, a static copula, or a small number of common factors. Such representations, when specified separately at each observation horizon, do not by themselves explain why the effective dependence observed in monthly credit data differs from that observed after annua…
Risk Management22d ago
Niushan Gao, Denny H. Leung, Foivos Xanthos
Prudence is a stability property of risk functionals recently introduced by Wang and Zitikis and subsequently studied by Amarante and Liebrich. In this paper, we first establish general relationships between prudence and other stability properties, showing, in particular, that weak prudence and prudence coincide for a broad class of conve…
Risk Management23d ago
Xuan Mei, Junze Lin
Complex model suites composed of multiple interacting component models are widely used in financial forecasting and risk management. In model performance testing, including in-sample backtesting (BT) and out-of-sample ongoing performance monitoring (OPM), a material gap between a model-suite forecast and the realized outcome must often be…
stat.MEq-fin.RMq-fin.ST23d ago
Yuan Christopher Qiang, Fabio Sigrist
We introduce the zero-one censored transformed normal (ZOC-TN) model for proportional responses with potential probability mass at the boundaries 0 and 1. The model combines a censored Gaussian variable with a two-parameter affine-logit transformation on the interior (0,1). We characterize the transformation parameters, establish large-sa…
math.PRq-fin.RM23d ago
Ben Goldys, Max Nendel
In this paper, we provide a sufficient condition for the absolute continuity of one-dimensional push-forwards of dependent random vectors. Suppose that $X$ has an absolutely continuous distribution and that the conditional distribution of an $\mathbb{R}^d$-valued random vector $Y$ given $X=x$ is nondecreasing in $x\in \mathbb{R}$ in the u…
Risk Management24d ago
Jake J. Xia
This paper develops a general framework for analyzing multi-agent systems with feedback loops between agents actions and collective observations. The framework is built on two fundamental agent-level variables: power, which measures agent influence on collective outcomes, and response functions, which determine how agents react to observa…
Statistical Financeq-fin.MFq-fin.RM24d ago
Sara A. Safari, Christoph Schmidhuber
We forecast future volatilities and correlations of financial markets based on the current trends in these markets. This complements previous work that models future expected returns by a cubic polynomial of the current trend strength. Empirically, we observe that volatilities and correlations tend to increase day after day in times of st…
Risk Management24d ago
Daniil Peysakhovich, Rafał Sieradzki
Errors in risk valuation outputs arising from data-feed failures, model misconfiguration, or system malfunctions can propagate undetected through an investment bank's risk infrastructure and generate material operational losses. Using proprietary daily credit-derivatives data from a major global investment bank covering 183 trades across …
cs.AIq-fin.RM25d ago
Aijie Shu, Bowei Chen, Wenbin Wu, Cathy Yi-Hsuan Chen +1
Decentralized finance exposes supervisors to fast-moving, networked credit risks. General-purpose LLM agents fit this setting poorly: they over-read weak evidence and recommend high-stakes interventions, while existing evaluations offer no regulator-aligned way to measure the resulting false alarms. We introduce DeXposure-Claw, a forecast…
stat.APq-fin.RM25d ago
Denis Burakov
The probabilistic reading of the cumulative accuracy profile (CAP) has a long industry lineage. Falkenstein, Boral and Carty (2000) state, in discrete form, that the default rate at a score percentile equals the portfolio average rate times the local slope of the power curve; van der Burgt (2008, 2019) formalizes this as the continuous id…
math.STq-fin.RM26d ago
Simone Cuonzo, Nina Deliu
This paper extends classical conformal frameworks for constructing prediction intervals with global marginal coverage $1-α$ to intervals that provide explicitly calibrated guarantees for the upper and lower tails separately. Focusing on split conformal prediction, we first construct lower and upper one-sided conformal intervals that achie…
Risk Management26d ago
Matthew Francis Dixon
Agentic artificial intelligence systems introduce a new class of model risk. Unlike traditional predictive models, autonomous agents continuously acquire information, form beliefs regarding latent states of the environment, generate forecasts, select actions, and adapt their behavior over time. Existing validation methodologies focus prim…
cs.GTq-fin.RM27d ago
Hao-Hsuan Chen
Paper A defines a time-consistent actuarial runtime that prices each side-effect-bearing action against a contractually fixed safe default and gates execution against a reserve budget. It treats the operator as passive. This paper makes the operator strategic. We characterise a five-attack space for autonomous AI-agent insurance contracts…
Risk Managementq-fin.ST28d ago
Mante Zelvyte, Jim E. Griffin
We introduce the Multiplex Network Hawkes model, which extends the network Hawkes framework of Linderman & Adams (2014) by allowing multiple excitation layers whose weights depend on observed edge and node covariates. We use the model to investigate how contagion in financial networks is affected by different transmission channels. The mu…
Risk Management29d ago
Matthew Francis Dixon
Agentic AI systems create model risk because uncertain beliefs are coupled to autonomous actions. This paper develops a mathematical framework for quantifying agentic AI risk by representing the system as a partially observed Markov decision process with latent states, Bayesian belief updates, control-dependent losses, and tail-risk funct…
cs.LGq-fin.RM29d ago
Emre Yusuf, Ren Takahashi, Jayabrata Bhaduri
Rare events in time series are critical to model but hard to learn due to data scarcity. Current generative models struggle with extreme values. We observe that rare events leave distinct topological fingerprints - transitions in Betti numbers from point-cloud embeddings - that are more stable and discriminative than statistical moments. …
Risk Management1mo ago
Nader Karimi, Foad Shokrollahi
This paper develops a climate-aware pricing framework for excess-of-loss (XL) reinsurance contracts and catastrophe (CAT) bonds under non-stationary catastrophe risk. Catastrophe arrivals are modeled as a Cox process whose stochastic intensity depends exponentially on a temperature-related climate index. To represent climate dynamics, the…
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