Probabilistic Modeling

RVRAE: A Dynamic Factor Model Based on Variational Recurrent Autoencoder for Stock Returns Prediction ArXiv ID: 2403.02500 “View on arXiv” Authors: Unknown Abstract In recent years, the dynamic factor model has emerged as a dominant tool in economics and finance, particularly for investment strategies. This model offers improved handling of complex, nonlinear, and noisy market conditions compared to traditional static factor models. The advancement of machine learning, especially in dealing with nonlinear data, has further enhanced asset pricing methodologies. This paper introduces a groundbreaking dynamic factor model named RVRAE. This model is a probabilistic approach that addresses the temporal dependencies and noise in market data. RVRAE ingeniously combines the principles of dynamic factor modeling with the variational recurrent autoencoder (VRAE) from deep learning. A key feature of RVRAE is its use of a prior-posterior learning method. This method fine-tunes the model’s learning process by seeking an optimal posterior factor model informed by future data. Notably, RVRAE is adept at risk modeling in volatile stock markets, estimating variances from latent space distributions while also predicting returns. Our empirical tests with real stock market data underscore RVRAE’s superior performance compared to various established baseline methods. ...

Robust Trading in a Generalized Lattice Market ArXiv ID: 2310.11023 “View on arXiv” Authors: Unknown Abstract This paper introduces a novel robust trading paradigm, called \textit{“multi-double linear policies”}, situated within a \textit{“generalized”} lattice market. Distinctively, our framework departs from most existing robust trading strategies, which are predominantly limited to single or paired assets and typically embed asset correlation within the trading strategy itself, rather than as an inherent characteristic of the market. Our generalized lattice market model incorporates both serially correlated returns and asset correlation through a conditional probabilistic model. In the nominal case, where the parameters of the model are known, we demonstrate that the proposed policies ensure survivability and probabilistic positivity. We then derive an analytic expression for the worst-case expected gain-loss and prove sufficient conditions that the proposed policies can maintain a \textit{“positive expected profits”}, even within a seemingly nonprofitable symmetric lattice market. When the parameters are unknown and require estimation, we show that the parameter space of the lattice model forms a convex polyhedron, and we present an efficient estimation method using a constrained least-squares method. These theoretical findings are strengthened by extensive empirical studies using data from the top 30 companies within the S&P 500 index, substantiating the efficacy of the generalized model and the robustness of the proposed policies in sustaining the positive expected profit and providing downside risk protection. ...

A novel approach for quantum financial simulation and quantum state preparation ArXiv ID: 2308.01844 “View on arXiv” Authors: Unknown Abstract Quantum state preparation is vital in quantum computing and information processing. The ability to accurately and reliably prepare specific quantum states is essential for various applications. One of the promising applications of quantum computers is quantum simulation. This requires preparing a quantum state representing the system we are trying to simulate. This research introduces a novel simulation algorithm, the multi-Split-Steps Quantum Walk (multi-SSQW), designed to learn and load complicated probability distributions using parameterized quantum circuits (PQC) with a variational solver on classical simulators. The multi-SSQW algorithm is a modified version of the split-steps quantum walk, enhanced to incorporate a multi-agent decision-making process, rendering it suitable for modeling financial markets. The study provides theoretical descriptions and empirical investigations of the multi-SSQW algorithm to demonstrate its promising capabilities in probability distribution simulation and financial market modeling. Harnessing the advantages of quantum computation, the multi-SSQW models complex financial distributions and scenarios with high accuracy, providing valuable insights and mechanisms for financial analysis and decision-making. The multi-SSQW’s key benefits include its modeling flexibility, stable convergence, and instantaneous computation. These advantages underscore its rapid modeling and prediction potential in dynamic financial markets. ...