In briefOptimal quote placement for market makers under a state-dependent Hawkes order flow model
SummaryThe paper studies how a market maker should place quotes when order flow follows a state-dependent Hawkes process. It links market-order counts to execution volumes through a block-based linear demand model and formulates a continuous-time, discrete-state dynamic program. Under a quadratic terminal inventory penalty, it derives inventory-dependent quotes and backward recursions for the value function coefficients. Numerical tests on LOBSTER data show higher aggregate terminal wealth than fixed-spread benchmarks at one and three ticks, but lower than the two-tick benchmark.
In briefPricing Catastrophe Bonds in Incomplete Markets Using Riemannian Geometry and Financial Entropy
SummaryThis paper proposes a framework for pricing catastrophe bonds in incomplete markets by optimizing financial entropy with Riemannian geometry to select the pricing measure. It uses a compound Poisson and generalized Pareto loss model with Wang distortion and derives closed-form expressions for entropy and the Riemannian metric. Applied to a hypothetical earthquake bond calibrated to Golden State Re II (Series 2014-1) spreads, the study compares risk-neutral and physical trigger intensities and splits the risk premium between frequency and severity components.
In briefDeposits Should Not Reduce Returns: Supplier Income Monotonicity and Rate Curve Design in Pooled Lending
SummaryThe paper studies utilization-based interest rate models in which adding liquidity can lower a supplier's total interest income even as its balance rises. It gives the condition under which a supplier's income does not decrease with a marginal deposit and derives the resulting constraint on admissible rate curves. The authors also check how often the problematic case occurred on two public Drift markets.
In briefSimple, low-complexity ETF portfolios for private investors
SummaryThis empirical study tests portfolio construction methods for private investors using liquid US ETFs, with monthly trading costs and no short selling or leverage. The portfolios are built as convex optimization problems using interpretable inputs estimated from public data. The authors report that simple portfolios of as few as three ETFs deliver consistent returns and outperform a standard 60/40 allocation over the past two decades.
In briefRisk measures for infinite-server queues driven by a Cox-BESQ process
SummaryThis paper proposes an infinite-server queue model whose arrival intensity follows a Cox process driven by a squared Bessel (BESQ) process. Using the affine structure of the dynamics, it derives closed-form joint moment-generating functions for the arrival intensity, the number of customers, and the time integral of the customer count, extendable to two or more dates. These explicit functions are used to construct risk measures, such as joint moments conditional on a variable exceeding a threshold, computed via Fourier representations. Numerical experiments illustrate the practical implementation of the method.
In briefEvent definition and branching ratio: Hawkes estimates of price-change clustering in consolidated quotes
SummaryThis paper fits Hawkes models to price changes in the consolidated US quote feed, where raw estimates show a sub-millisecond kernel and a near-critical branching ratio. The authors find that in large-tick stocks about half of NBBO changes are locked or depleted quotes resolved within a millisecond, which the model misreads as excitation. Defining events as a mid-price level persisting for one millisecond removes the sub-millisecond component.
In briefFinLLM-KG: Knowledge-Graph-Enhanced LLMs for Financial Sentiment in Algorithmic Trading
SummaryThis paper proposes FinLLM-KG, a framework that combines causal large language models with a financial knowledge graph built from SEC 10-K filings. It supplies company-level context at inference time without updating model weights, either as a profile or as relevance-ranked factual triples. Sentiment scores are attributed to individual sentences and graph facts to make predictions more explainable. Simulations reportedly show consistent portfolio performance gains over a state-of-the-art baseline.
Giorgos Iacovides, Oliver Hannibal, Wuyang Zhou et al.
