Equities (Options)

DeepSVM: Learning Stochastic Volatility Models with Physics-Informed Deep Operator Networks ArXiv ID: 2512.07162 “View on arXiv” Authors: Kieran A. Malandain, Selim Kalici, Hakob Chakhoyan Abstract Real-time calibration of stochastic volatility models (SVMs) is computationally bottlenecked by the need to repeatedly solve coupled partial differential equations (PDEs). In this work, we propose DeepSVM, a physics-informed Deep Operator Network (PI-DeepONet) designed to learn the solution operator of the Heston model across its entire parameter space. Unlike standard data-driven deep learning (DL) approaches, DeepSVM requires no labelled training data. Rather, we employ a hard-constrained ansatz that enforces terminal payoffs and static no-arbitrage conditions by design. Furthermore, we use Residual-based Adaptive Refinement (RAR) to stabilize training in difficult regions subject to high gradients. Overall, DeepSVM achieves a final training loss of $10^{"-5"}$ and predicts highly accurate option prices across a range of typical market dynamics. While pricing accuracy is high, we find that the model’s derivatives (Greeks) exhibit noise in the at-the-money (ATM) regime, highlighting the specific need for higher-order regularization in physics-informed operator learning. ...

Inferring Latent Market Forces: Evaluating LLM Detection of Gamma Exposure Patterns via Obfuscation Testing ArXiv ID: 2512.17923 “View on arXiv” Authors: Christopher Regan, Ying Xie Abstract We introduce obfuscation testing, a novel methodology for validating whether large language models detect structural market patterns through causal reasoning rather than temporal association. Testing three dealer hedging constraint patterns (gamma positioning, stock pinning, 0DTE hedging) on 242 trading days (95.6% coverage) of S&P 500 options data, we find LLMs achieve 71.5% detection rate using unbiased prompts that provide only raw gamma exposure values without regime labels or temporal context. The WHO-WHOM-WHAT causal framework forces models to identify the economic actors (dealers), affected parties (directional traders), and structural mechanisms (forced hedging) underlying observed market dynamics. Critically, detection accuracy (91.2%) remains stable even as economic profitability varies quarterly, demonstrating that models identify structural constraints rather than profitable patterns. When prompted with regime labels, detection increases to 100%, but the 71.5% unbiased rate validates genuine pattern recognition. Our findings suggest LLMs possess emergent capabilities for detecting complex financial mechanisms through pure structural reasoning, with implications for systematic strategy development, risk management, and our understanding of how transformer architectures process financial market dynamics. ...

Volatility of Volatility and Leverage Effect from Options ArXiv ID: 2305.04137 “View on arXiv” Authors: Unknown Abstract We propose model-free (nonparametric) estimators of the volatility of volatility and leverage effect using high-frequency observations of short-dated options. At each point in time, we integrate available options into estimates of the conditional characteristic function of the price increment until the options’ expiration and we use these estimates to recover spot volatility. Our volatility of volatility estimator is then formed from the sample variance and first-order autocovariance of the spot volatility increments, with the latter correcting for the bias in the former due to option observation errors. The leverage effect estimator is the sample covariance between price increments and the estimated volatility increments. The rate of convergence of the estimators depends on the diffusive innovations in the latent volatility process as well as on the observation error in the options with strikes in the vicinity of the current spot price. Feasible inference is developed in a way that does not require prior knowledge of the source of estimation error that is asymptotically dominating. ...