Pasquale Cirillo’s research while affiliated with Institute for Information Management and other places

We introduce the Quantum Alarm System, a novel framework that combines the informational advantages of quantum majorization applied to tail pseudo-correlation matrices with the learning capabilities of a reinforced urn process, to predict financial turmoil and market crashes. This integration allows for a more nuanced analysis of the dependence structure in financial markets, particularly focusing on extreme events reflected in the tails of the distribution. Our model is tested using the daily log-returns of the 30 constituents of the Dow Jones Industrial Average, spanning from 2 January 1992 to 30 August 2024. The results are encouraging: in the validation set, the 12-month ahead probability of correct alarm is between 73% and 80%, while maintaining a low false alarm rate. Thanks to the application of quantum majorization, the alarm system effectively captures non-traditional and emerging risk sources, such as the financial impact of the COVID-19 pandemic—an area where traditional models often fall short.

We propose a non-parametric estimator for bivariate left-truncated and right-censored observations that combines the expectation–maximization algorithm and the reinforced urn process. The resulting expectation-reinforcement algorithm allows for the inclusion of experts’ knowledge in the form of a prior distribution, thus belonging to the class of Bayesian models. This can be relevant in applications where the data is incomplete, due to biases in the sampling process, as in the case of left-truncation and right-censoring. With this new approach, the distribution of the truncation variables is also recovered, granting further insight into those biases, and playing an important role in applications like prevalent cohort studies. The estimators are tested numerically using artificial and empirical datasets, and compared with other methodologies such as copula models and the Kaplan–Meier estimator.

We combine the metrics of distance and isolation to develop the Analytic Isolation and Distance-based Anomaly (AIDA) detection algorithm. AIDA is the first distance-based method that does not rely on the concept of nearest-neighbours, making it a parameter-free model. Differently from the prevailing literature, in which the isolation metric is always computed via simulations, we show that AIDA admits an analytical expression for the outlier score, providing new insights into the isolation metric. Additionally, we present an anomaly explanation method based on AIDA, the Tempered Isolation-based eXplanation (TIX) algorithm, which finds the most relevant outlier features even in data sets with hundreds of dimensions. We test both algorithms on synthetic and empirical data: we show that AIDA is competitive when compared to other state-of-the-art methods, and it is superior in finding outliers hidden in multidimensional feature subspaces. Finally, we illustrate how the TIX algorithm is able to find outliers in multidimensional feature subspaces, and use these explanations to analyze common benchmarks used in anomaly detection.

Forecasting has always been at the forefront of decision making and planning. The uncertainty that surrounds the future is both exciting and challenging, with individuals and organisations seeking to minimise risks and maximise utilities. The large number of forecasting applications calls for a diverse set of forecasting methods to tackle real-life challenges. This article provides a non-systematic review of the theory and the practice of forecasting. We provide an overview of a wide range of theoretical, state-of-the-art models, methods, principles, and approaches to prepare, produce, organise, and evaluate forecasts. We then demonstrate how such theoretical concepts are applied in a variety of real-life contexts. We do not claim that this review is an exhaustive list of methods and applications. However, we wish that our encyclopedic presentation will offer a point of reference for the rich work that has been undertaken over the last decades, with some key insights for the future of forecasting theory and practice. Given its encyclopedic nature, the intended mode of reading is non-linear. We offer cross-references to allow the readers to navigate through the various topics. We complement the theoretical concepts and applications covered by large lists of free or open-source software implementations and publicly-available databases.

Forecasting has always been at the forefront of decision making and planning. The uncertainty that surrounds the future is both exciting and challenging, with individuals and organisations seeking to minimise risks and maximise utilities. The large number of forecasting applications calls for a diverse set of forecasting methods to tackle real-life challenges. This article provides a non-systematic review of the theory and the practice of forecasting. We provide an overview of a wide range of theoretical, state-of-the-art models, methods, principles, and approaches to prepare, produce, organise, and evaluate forecasts. We then demonstrate how such theoretical concepts are applied in a variety of real-life contexts. We do not claim that this review is an exhaustive list of methods and applications. However, we wish that our encyclopedic presentation will offer a point of reference for the rich work that has been undertaken over the last decades, with some key insights for the future of forecasting theory and practice. Given its encyclopedic nature, the intended mode of reading is non-linear. We offer cross-references to allow the readers to navigate through the various topics. We complement the theoretical concepts and applications covered by large lists of free or open-source software implementations and publicly-available databases.

We propose a new jump-diffusion process, the Heston-Queue-Hawkes (HQH) model, combining the well-known Heston model and the recently introduced Queue-Hawkes (Q-Hawkes) jump process. Like the Hawkes process, the HQH model can capture the effects of self-excitation and contagion. However, since the characteristic function of the HQH process is known in closed-form, Fourier-based fast pricing algorithms, like the COS method, can be fully exploited with this model. Furthermore, we show that by using partial integrals of the characteristic function, which are also explicitly known for the HQH process, we can reduce the dimensionality of the COS method, and so its numerical complexity. Numerical results for European and Bermudan options show that the HQH model offers a wider range of volatility smiles compared to the Bates model, while its computational burden is considerably smaller than that of the Heston-Hawkes (HH) process.