Research articles for the 2019-09-08

An extended Speculation Game for the recovery of Hurst exponent of financial time series
Kei Katahira,Yu Chen

The speculation game is an agent-based toy model to investigate the dynamics of the financial market. Our model has achieved the reproduction of 10 of the well-known stylized facts for financial time series. However, there is also a divergence from the behavior of real market. The market price of the model tends to be anti-persistent to the initial price, resulting in the quite small value of Hurst exponent of price change. To overcome this problem, we extend the speculation game by introducing a perturbative part to the price change with the consideration of other effects besides pure speculative behaviors.

Best Portfolio Management Strategies For Synthetic and Real Assets
Jarosław Gruszka,Janusz Szwabiński

Managing investment portfolios is an old and well know problem in multiple fields including financial mathematics and financial engineering as well as econometrics and econophysics. Multiple different concepts and theories were used so far to describe methods of handling with financial assets, including differential equations, stochastic calculus and advanced statistics. In this paper, using a set of tools from the probability theory, various strategies of building financial portfolios are analysed in different market conditions. A special attention is given to several realisations of a so called balanced portfolio, which is rooted in the natural "buy-low-sell-high" principle. Results show that there is no universal strategy, because they perform differently in different circumstances (e.g. for varying transaction costs). Moreover, the planned time of investment may also have a significant impact on the profitability of certain strategies. All methods have been tested with both simulated trajectories and real data from the Polish stock market.

Merger Opportunities Among Club Shopping Stores
Jalbert, Terrance
The primary subject matter of this case concerns mergers and divestures in the club shopping retail space. The club shopping concept has made significant inroads, both in U.S. and International markets, since the 1970’s. This case requires students to examine the prospect for mergers and divestures among club shopping stores. The case considers four club stores, and one similar non-club store. Case information provides a discussion of each store’s history, management issues and related financial information. Students must analyze the data and provide specific recommendations. Students may seek external information to refine their recommendations.

Portfolio optimisation under rough Heston models
Benjamin James Duthie

This thesis investigates Merton's portfolio problem under two different rough Heston models, which have a non-Markovian structure. The motivation behind this choice of problem is due to the recent discovery and success of rough volatility processes. The optimisation problem is solved from two different approaches: firstly by considering an auxiliary random process, which solves the optimisation problem with the martingale optimality principle, and secondly, by a finite dimensional approximation of the volatility process which casts the problem into its classical stochastic control framework. In addition, we show how classical results from Merton's portfolio optimisation problem can be used to help motivate the construction of the solution in both cases. The optimal strategy under both approaches is then derived in a semi-closed form, and comparisons between the results made. The approaches discussed in this thesis, combined with the historical works on the distortion transformation, provide a strong foundation to build models capable of handling increasing complexity demanded by the ever growing financial market.

Scaling Limits for Super--replication with Transient Price Impact
Peter Bank,Yan Dolinsky

We prove a scaling limit theorem for the super-replication cost of options in a Cox--Ross--Rubinstein binomial model with transient price impact. The correct scaling turns out to keep the market depth parameter constant while resilience over fixed periods of time grows in inverse proportion with the duration between trading times. For vanilla options, the scaling limit is found to coincide with the one obtained by PDE methods in [12] for models with purely temporary price impact. These models are a special case of our framework and so our probabilistic scaling limit argument allows one to expand the scope of the scaling limit result to path-dependent options.