AIQF Daily digest — 1 strategy, 18 new papers

New public strategies

• Calibrated Ridge-Logistic VIX Stress Defensive SPY Allocation

  A class-weighted ridge-logistic model estimates the probability of near-term VIX stress and continuously scales a long-only SPY allocation, leaving the balance in cash. Volatility targeting, drawdown control, and exposure smoothing further reduce risk.

  Sharpe 0.89 · total return 22.5% · max drawdown -8.6%

Quant Paper Radar · 9 of 18

1. 1

   From Cointegration to Out-of-Sample Failure: A Pairs-Trading Case Study on PEP-KO

   Davide Graziano · ARXIV · Statistical Arbitrage / Pairs Trading

   we backtested it — Sharpe 0.11 · quant relevance 1.00

   The paper tests a cointegration-based PEP–KO pairs strategy and finds that its in-sample profitability weakens out of sample. Much of the earlier performance was concentrated around the COVID-19 dislocation, and the daily-price strategy and robustness tests are reproducible subject to the platform's available end date.

   original paper

2. 2

   The Efficient Frontier from a LASSO Solver

   Thomas Schmelzer · ARXIV · Portfolio Optimization

   we backtested it — Sharpe 0.00 · quant relevance 0.96

   The paper uses a LASSO path to compute mean–variance efficient frontiers for long-only and leverage-constrained portfolios. Its empirical results assess numerical accuracy and computation time rather than trading performance.

   original paper

3. 3

   Deep kernel hedging

   Jean-Loup Dupret, Donatien Hainaut, Edouard Motte · ARXIV · Derivatives Hedging

   we backtested it — Sharpe 2.30 · quant relevance 0.95

   The paper develops a data-driven method for selecting derivative hedges and reports results on synthetic and real data. Its daily, end-of-day application can be tested with listed US equity options and their underlying stocks, but the excerpt does not identify the contracts used in the real-data experiments.

   original paper

The rest of the batch

• Retrieval-Augmented Diffusion Modeling for Stochastic Discount Factor Portfolios

  Kelvin J. L. Koa, Xinyang Li, Ke-Wei Huang · ARXIV · relevance 0.98

  RADAR retrieves historical price-and-news regimes to denoise market representations and determine SDF-based portfolio weights.

• From Word Counts to Context: Topic Models for Asset Pricing

  Kevin Foley, Jonathan Hartadi, Shivesh Prakash et al. · ARXIV · relevance 0.95

  The paper draws on financial-news topics to build stock exposures, latent risk factors, and an out-of-sample equity portfolio.

• Optimal Liquidation with Support and Resistance Levels under Multi-Skew Brownian Motion

  Jun Maeda · ARXIV · relevance 0.94

  The paper derives a rule for optimally liquidating an existing asset position under price dynamics with distinct support and resistance levels.

• Oracle-Parametrized Constant Function Market Makers: From Price Feeds to Pricing Rules

  Hamed Amini, Zachary Feinstein · ARXIV · relevance 0.94

  The paper examines pricing rules for liquidity provision in oracle-parametrized automated market makers, measuring arbitrage losses and capital efficiency in a counterfactual backtest.

• Introducing the CZAR Loss: A Tailored Objective Function for Financial Log-Return Predictions

  Joel Pfeffer, J. M. Diederik Kruijssen, Florian Stecker et al. · ARXIV · relevance 0.91

  The paper proposes a loss function for return prediction intended to improve directional trading signals.

• When Hedging Changes the Payoff: Option Replication with Price Impact and Execution Costs

  David Itkin, Leandro Sánchez-Betancourt · ARXIV · relevance 0.91

  The paper develops a method for pricing and dynamically hedging European options that accounts for price impact.

and 9 more · see the full radar