Intraday Limit Order Price Change Transition Dynamics Across Market Capitalizations Through Markov Analysis ArXiv ID: 2601.04959 “View on arXiv” Authors: Salam Rabindrajit Luwang, Kundan Mukhia, Buddha Nath Sharma, Md. Nurujjaman, Anish Rai, Filippo Petroni Abstract Quantitative understanding of stochastic dynamics in limit order price changes is essential for execution strategy design. We analyze intraday transition dynamics of ask and bid orders across market capitalization tiers using high-frequency NASDAQ100 tick data. Employing a discrete-time Markov chain framework, we categorize consecutive price changes into nine states and estimate transition probability matrices (TPMs) for six intraday intervals across High ($\mathtt{“HMC”}$), Medium ($\mathtt{“MMC”}$), and Low ($\mathtt{“LMC”}$) market cap stocks. Element-wise TPM comparison reveals systematic patterns: price inertia peaks during opening and closing hours, stabilizing midday. A capitalization gradient is observed: $\mathtt{“HMC”}$ stocks exhibit the strongest inertia, while $\mathtt{“LMC”}$ stocks show lower stability and wider spreads. Markov metrics, including spectral gap, entropy rate, and mean recurrence times, quantify these dynamics. Clustering analysis identifies three distinct temporal phases on the bid side – Opening, Midday, and Closing, and four phases on the ask side by distinguishing Opening, Midday, Pre-Close, and Close. This indicates that sellers initiate end-of-day positioning earlier than buyers. Stationary distributions show limit order dynamics are dominated by neutral and mild price changes. Jensen-Shannon divergence confirms the closing hour as the most distinct phase, with capitalization modulating temporal contrasts and bid-ask asymmetry. These findings support capitalization-aware and time-adaptive execution algorithms. ...

Trading Electrons: Predicting DART Spread Spikes in ISO Electricity Markets ArXiv ID: 2601.05085 “View on arXiv” Authors: Emma Hubert, Dimitrios Lolas, Ronnie Sircar Abstract We study the problem of forecasting and optimally trading day-ahead versus real-time (DART) price spreads in U.S. wholesale electricity markets. Building on the framework of Galarneau-Vincent et al., we extend spike prediction from a single zone to a multi-zone setting and treat both positive and negative DART spikes within a unified statistical model. To translate directional signals into economically meaningful positions, we develop a structural and market-consistent price impact model based on day-ahead bid stacks. This yields closed-form expressions for the optimal vector of zonal INC/DEC quantities, capturing asymmetric buy/sell impacts and cross-zone congestion effects. When applied to NYISO, the resulting impact-aware strategy significantly improves the risk-return profile relative to unit-size trading and highlights substantial heterogeneity across markets and seasons. ...

A comprehensive review and analysis of different modeling approaches for financial index tracking problem ArXiv ID: 2601.03927 “View on arXiv” Authors: Vrinda Dhingra, Amita Sharma, Anubha Goel Abstract Index tracking, also known as passive investing, has gained significant traction in financial markets due to its cost-effective and efficient approach to replicating the performance of a specific market index. This review paper provides a comprehensive overview of the various modeling approaches and strategies developed for index tracking, highlighting the strengths and limitations of each approach. We categorize the index tracking models into three broad frameworks: optimization-based models, statistical-based models and machine learning based data-driven approach. A comprehensive empirical study conducted on the S&P 500 dataset demonstrates that the tracking error volatility model under the optimization-based framework delivers the most precise index tracking, the convex co-integration model, under the statistical-based framework achieves the strongest return-risk balance, and the deep neural network with fixed noise model within the data-driven framework provides a competitive performance with notably low turnover and high computational efficiency. By combining a critical review of the existing literature with comparative empirical analysis, this paper aims to provide insights into the evolving landscape of index tracking and its practical implications for investors and fund managers. ...

All That Glisters Is Not Gold: A Benchmark for Reference-Free Counterfactual Financial Misinformation Detection ArXiv ID: 2601.04160 “View on arXiv” Authors: Yuechen Jiang, Zhiwei Liu, Yupeng Cao, Yueru He, Ziyang Xu, Chen Xu, Zhiyang Deng, Prayag Tiwari, Xi Chen, Alejandro Lopez-Lira, Jimin Huang, Junichi Tsujii, Sophia Ananiadou Abstract We introduce RFC Bench, a benchmark for evaluating large language models on financial misinformation under realistic news. RFC Bench operates at the paragraph level and captures the contextual complexity of financial news where meaning emerges from dispersed cues. The benchmark defines two complementary tasks: reference free misinformation detection and comparison based diagnosis using paired original perturbed inputs. Experiments reveal a consistent pattern: performance is substantially stronger when comparative context is available, while reference free settings expose significant weaknesses, including unstable predictions and elevated invalid outputs. These results indicate that current models struggle to maintain coherent belief states without external grounding. By highlighting this gap, RFC Bench provides a structured testbed for studying reference free reasoning and advancing more reliable financial misinformation detection in real world settings. ...

Class of topological portfolios: Are they better than classical portfolios? ArXiv ID: 2601.03974 “View on arXiv” Authors: Anubha Goel, Amita Sharma, Juho Kanniainen Abstract Topological Data Analysis (TDA), an emerging field in investment sciences, harnesses mathematical methods to extract data features based on shape, offering a promising alternative to classical portfolio selection methodologies. We utilize persistence landscapes, a type of summary statistics for persistent homology, to capture the topological variation of returns, blossoming a novel concept of ``Topological Risk". Our proposed topological risk then quantifies portfolio risk by tracking time-varying topological properties of assets through the $L_p$ norm of the persistence landscape. Through optimization, we derive an optimal portfolio that minimizes this topological risk. Numerical experiments conducted using nearly a decade long S&P 500 data demonstrate the superior performance of our TDA-based portfolios in comparison to the seven popular portfolio optimization models and two benchmark portfolio strategies, the naive $1/N$ portfolio and the S&P 500 market index, in terms of excess mean return, and several financial ratios. The outcome remains consistent through out the computational analysis conducted for the varying size of holding and investment time horizon. These results underscore the potential of our TDA-based topological risk metric in providing a more comprehensive understanding of portfolio dynamics than traditional statistical measures. As such, it holds significant relevance for modern portfolio management practices. ...

Quantum computing for multidimensional option pricing: End-to-end pipeline ArXiv ID: 2601.04049 “View on arXiv” Authors: Julien Hok, Álvaro Leitao Abstract This work introduces an end-to-end framework for multi-asset option pricing that combines market-consistent risk-neutral density recovery with quantum-accelerated numerical integration. We first calibrate arbitrage-free marginal distributions from European option quotes using the Normal Inverse Gaussian (NIG) model, leveraging its analytical tractability and ability to capture skewness and fat tails. Marginals are coupled via a Gaussian copula to construct joint distributions. To address the computational bottleneck of the high-dimensional integration required to solve the option pricing formula, we employ Quantum Accelerated Monte Carlo (QAMC) techniques based on Quantum Amplitude Estimation (QAE), achieving quadratic convergence improvements over classical Monte Carlo (CMC) methods. Theoretical results establish accuracy bounds and query complexity for both marginal density estimation (via cosine-series expansions) and multidimensional pricing. Empirical tests on liquid equity entities (Credit Agricole, AXA, Michelin) confirm high calibration accuracy and demonstrate that QAMC requires 10-100 times fewer queries than classical methods for comparable precision. This study provides a practical route to integrate arbitrage-aware modelling with quantum computing, highlighting implications for scalability and future extensions to complex derivatives. ...

Smart Predict–then–Optimize Paradigm for Portfolio Optimization in Real Markets ArXiv ID: 2601.04062 “View on arXiv” Authors: Wang Yi, Takashi Hasuike Abstract Improvements in return forecast accuracy do not always lead to proportional improvements in portfolio decision quality, especially under realistic trading frictions and constraints. This paper adopts the Smart Predict–then–Optimize (SPO) paradigm for portfolio optimization in real markets, which explicitly aligns the learning objective with downstream portfolio decision quality rather than pointwise prediction accuracy. Within this paradigm, predictive models are trained using an SPO-based surrogate loss that directly reflects the performance of the resulting investment decisions. To preserve interpretability and robustness, we employ linear predictors built on return-based and technical-indicator features and integrate them with portfolio optimization models that incorporate transaction costs, turnover control, and regularization. We evaluate the proposed approach on U.S. ETF data (2015–2025) using a rolling-window backtest with monthly rebalancing. Empirical results show that decision-focused training consistently improves risk-adjusted performance over predict–then–optimize baselines and classical optimization benchmarks, and yields strong robustness during adverse market regimes (e.g., the 2020 COVID-19). These findings highlight the practical value of the Smart Predict–then–Optimize paradigm for portfolio optimization in realistic and non-stationary financial environments. ...

Trade-R1: Bridging Verifiable Rewards to Stochastic Environments via Process-Level Reasoning Verification ArXiv ID: 2601.03948 “View on arXiv” Authors: Rui Sun, Yifan Sun, Sheng Xu, Li Zhao, Jing Li, Daxin Jiang, Cheng Hua, Zuo Bai Abstract Reinforcement Learning (RL) has enabled Large Language Models (LLMs) to achieve remarkable reasoning in domains like mathematics and coding, where verifiable rewards provide clear signals. However, extending this paradigm to financial decision is challenged by the market’s stochastic nature: rewards are verifiable but inherently noisy, causing standard RL to degenerate into reward hacking. To address this, we propose Trade-R1, a model training framework that bridges verifiable rewards to stochastic environments via process-level reasoning verification. Our key innovation is a verification method that transforms the problem of evaluating reasoning over lengthy financial documents into a structured Retrieval-Augmented Generation (RAG) task. We construct a triangular consistency metric, assessing pairwise alignment between retrieved evidence, reasoning chains, and decisions to serve as a validity filter for noisy market returns. We explore two reward integration strategies: Fixed-effect Semantic Reward (FSR) for stable alignment signals, and Dynamic-effect Semantic Reward (DSR) for coupled magnitude optimization. Experiments on different country asset selection demonstrate that our paradigm reduces reward hacking, with DSR achieving superior cross-market generalization while maintaining the highest reasoning consistency. ...

Breaking the Dimensional Barrier: Dynamic Portfolio Choice with Parameter Uncertainty via Pontryagin Projection ArXiv ID: 2601.03175 “View on arXiv” Authors: Jeonggyu Huh, Hyeng Keun Koo Abstract We study continuous-time portfolio choice in diffusion markets with parameter $θ\in Θ$ and uncertainty law $q(dθ)$. Nature draws latent $θ\sim q$ at time 0; the investor cannot observe it and must deploy a single $θ$-blind feedback policy maximizing an ex-ante CRRA objective averaged over diffusion noise and $θ$. Our methods access $q$ only by sampling and assume no parametric form. We extend Pontryagin-Guided Direct Policy Optimization (PG-DPO) by sampling $θ$ inside the simulator and computing discrete-time gradients via backpropagation through time (BPTT), and we propose projected PG-DPO (P-PGDPO) that projects costate estimates to satisfy the $q$-aggregated Pontryagin first-order condition, yielding a deployable rule. We prove a BPTT-PMP correspondence uniform on compacts and a residual-based $θ$-blind policy-gap bound under local stability with explicit discretization/Monte Carlo errors; experiments show projection-driven stability and accurate decision-time benchmark recovery in high dimensions. ...

Technology Adoption and Network Externalities in Financial Systems: A Spatial-Network Approach ArXiv ID: 2601.04246 “View on arXiv” Authors: Tatsuru Kikuchi Abstract This paper develops a unified framework for analyzing technology adoption in financial networks that incorporates spatial spillovers, network externalities, and their interaction. The framework characterizes adoption dynamics through a master equation whose solution admits a Feynman-Kac representation as expected cumulative adoption pressure along stochastic paths through spatial-network space. From this representation, I derive the Adoption Amplification Factor – a structural measure of technology leadership that captures the ratio of total system-wide adoption to initial adoption following a localized shock. A Levy jump-diffusion extension with state-dependent jump intensity captures critical mass dynamics: below threshold, adoption evolves through gradual diffusion; above threshold, cascade dynamics accelerate adoption through discrete jumps. Applying the framework to SWIFT gpi adoption among 17 Global Systemically Important Banks, I find strong support for the two-regime characterization. Network-central banks adopt significantly earlier ($ρ= -0.69$, $p = 0.002$), and pre-threshold adopters have significantly higher amplification factors than post-threshold adopters (11.81 versus 7.83, $p = 0.010$). Founding members, representing 29 percent of banks, account for 39 percent of total system amplification – sufficient to trigger cascade dynamics. Controlling for firm size and network position, CEO age delays adoption by 11-15 days per year. ...