Related papers: The Minimal Model of Financial Complexity
We introduce a Path Shadowing Monte-Carlo method, which provides prediction of future paths, given any generative model. At any given date, it averages future quantities over generated price paths whose past history matches, or `shadows',…
We adapt continuous time random walk (CTRW) formalism to describe asset price evolution and discuss some of the problems that can be treated using this approach. We basically focus on two aspects: (i) the derivation of the price…
The option is a financial derivative, which is regularly employed in reducing the risk of its underlying securities. However, investing in option is still risky. Such risk becomes much severer for speculators who utilize option as a means…
Financial price changes obey two universal properties: they follow a power law and they tend to be clustered in time. The second regularity, known as volatility clustering, entails some predictability in the price changes: while their sign…
In this paper we derive the optimal execution trajectory for a trader who wishes to buy or sell a large position of shares which evolve as a geometric Brownian process in contrast to the arithmetic model which prevails in the existing…
The main focus of this work is to understand the dynamics of non regulated markets. The present model can describe the dynamics of any market where the pricing is based on supply and demand. It will be applied here, as an example, for the…
Forecasting stock returns is a challenging problem due to the highly stochastic nature of the market and the vast array of factors and events that can influence trading volume and prices. Nevertheless it has proven to be an attractive…
We consider a continuous-time game-theoretic model of an investment market with short-lived assets and endogenous asset prices. The first goal of the paper is to formulate a stochastic equation which determines wealth processes of investors…
We point out some major drawbacks in random trading market models and propose a realistic modification which overcomes such drawbacks through `sensible trading'. We apply such trading policy in different situations: a) Agents with zero…
We derive simple return models for several classes of bond portfolios. With only one or two risk factors our models are able to explain most of the return variations in portfolios of fixed rate government bonds, inflation linked government…
This paper presents a new financial market simulator that may be used as a tool in both industry and academia for research in market microstructure. It allows multiple automated traders and/or researchers to simultaneously connect to an…
A generalized continuous economic model is proposed for random markets. In this model, agents interact by pairs and exchange their money in a random way. A parameter controls the effectiveness of the transactions between the agents. We show…
Modellers of complex biological or social systems are often faced with an invidious choice: to use simple models with few mechanisms that can be fully analysed, or to construct complicated models that include all the features which are…
Money flow models are essential tools to understand different economical phenomena, like saving propensities and wealth distributions. In spite of their importance, most of them are based on synthetic transaction networks with simple…
We consider the problem of dynamic buying and selling of shares from a collection of $N$ stocks with random price fluctuations. To limit investment risk, we place an upper bound on the total number of shares kept at any time. Assuming that…
The waiting time needed for a stock market index to undergo a given percentage change in its value is found to have an up-down asymmetry, which, surprisingly, is not observed for the individual stocks composing that index. To explain this,…
In risk management it is desirable to grasp the essential statistical features of a time series representing a risk factor. This tutorial aims to introduce a number of different stochastic processes that can help in grasping the essential…
We solve exactly a simple model of trend following strategy, and obtain the analytical shape of the profit per trade distribution. This distribution is non trivial and has an option like, asymmetric structure. The degree of asymmetry…
This paper considers the constrained portfolio optimization in a generalized life-cycle model. The individual with a stochastic income manages a portfolio consisting of stocks, a bond, and life insurance to maximize his or her consumption…
We propose a minimal model of the secured interbank network able to shed light on recent money markets puzzles. We find that excess liquidity emerges due to the interactions between the reserves and liquidity ratio constraints; the…