We show that during the weeks following the initiation of the COVID-19 pandemic, the United States equity market was inefficient. This is demonstrated by showing that utility maximizing agents over the time period ranging from mid-February to late March 2020 can generate statistically...

This paper studies efficient market hypothesis in prediction markets and the results are illustrated for the in-play football betting market using the quoted odds for the English Premier League. Our analysis is based on the martingale property, where the last quoted probability should be the...

This article develops unbiased weighted variance and skewness estimators for overlapping return distributions. These estimators extend the variance estimation methods constructed in Bod et. al. (Applied Financial Economics 12:155-158, 2002) and Lo and MacKinlay (Review of Financial Studies...

This paper presents a novel approach to model selection and model averaging based on economic theory. We study model prediction in the form of a distributional opinion about a random variable X. We show how to test this prediction against alternative views. Different model opinions can be traded...

Traditional plain vanilla options can be regarded as options on a simple return. These options have convex payoffs and as a consequence of Jensen's inequality, their prices are increasing as a function of maturity in the absence of interest rate. This makes long dated call options as excessively...

This paper presents a novel approach to portfolio optimization based on perceived mean reversion in certain driftless markets, such as the foreign exchange spot market. This approach relies upon the likelihood ratio between the perceived and realized price distribution densities of the asset...

We develop the complete 6-dimensional classical symmetry group of the partial differential equation (PDE) that governs the fair price of a simple Asian option within a simple market model. The symmetries we expose include the 5-dimensional symmetry group partially noted by Rogers and Shi, and...

Heat kernel perturbation theory is a tool for constructing explicit approximation formulas for the solutions of linear parabolic equations. We review the crux of this perturbative formalism and then apply it to differential equations which govern the transition densities of several local...

In this paper, we derive a closed-form explicit model-free formula for the (Black-Scholes) implied volatility. The method is based on the novel use of the Dirac Delta function, corresponding delta families, and the change of variable technique. The formula is expressed through either a limit or...

We propose a novel graph-theoretic method for the detection of circular arbitrage in foreign exchange (FX) markets and discuss and demonstrate runtime improvements of this algorithm over the brute force approach. An application on empirical currency bid/ask price data validates this technique as...