We analyze the impact that transaction costs have on asset mispricing in state-contingent claims markets. In particular, we examine betting markets, in which, it has been argued, transaction costs cause the favorite-longshot bias, a pricing anomaly analogous to the volatility smile in options...

The importance of bond markets in the financial industry stems from its dimension, its direct relevance for other asset classes and for the overall economy. In this paper, we conduct the first study of bond yield forecasting using deep learning long short-term memory (LSTM) networks, validating...

The yield curve is the centrepiece in bond markets, a massive asset class with an overall size of USD100 trillion that remains relatively under-investigated using machine learning. This paper is the first comprehensive study using artificial neural networks in the context of yield curve...

We develop a model to analyze distress spillover from the OTC interest rate swaps (IRS) market into the interbank market due to central clearing and margin requirements. We show that margin procyclicality in the OTC IRS market derived by interest rate volatility can lead to the onset of systemic...

We develop a model in which margin procyclicality and the propensity for liquidity hoarding interact to generate a systemic liquidity crisis. In this model, banks lend and borrow in the interbank market to mitigate liquidity risk and trade derivatives contracts in the OTC derivatives market to...

We develop a macroprudential stress test to assess the resilience of banking systems. The proposed approach integrates liquidity risk and solvency risk and provides a convenient method to estimate the change in both of them based on the evolution of financial distress within the banking system....