Related papers: Trading leads to scale-free self-organization
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 introduce the stochastic multiplicative point process modelling trading activity of financial markets. Such a model system exhibits power-law spectral density S(f) ~ 1/f**beta, scaled as power of frequency for various values of beta…
Multi-agent models have been used in many contexts to study generic collective behavior. Similarly, complex networks have become very popular because of the diversity of growth rules giving rise to scale-free behavior. Here we study…
We propose a kinetic model to describe the dynamical evolution of wealth and knowledge in national and global markets, starting from a microscopic description of individual interactions. The model is built upon interaction rules that…
Using the analogy with inelastic granular gasses we introduce a model for wealth exchange in society. The dynamics is governed by a kinetic equation, which allows for self-similar solutions. The scaling function has a power-law tail, the…
Detection of power-law behavior and studies of scaling exponents uncover the characteristics of complexity in many real world phenomena. The complexity of financial markets has always presented challenging issues and provided interesting…
Pareto distributions, and power laws in general, have demonstrated to be very useful models to describe very different phenomena, from physics to finance. In recent years, the econophysical literature has proposed a large amount of papers…
Inequality and its consequences are the subject of intense recent debate. Using a simplified model of the economy, we address the relation between inequality and liquidity, the latter understood as the frequency of economic exchanges.…
By employing exhaustive lists of large firms in European countries, we show that the upper-tail of the distribution of firm size can be fitted with a power-law (Pareto-Zipf law), and that in this region the growth rate of each firm is…
We show that assuming that the returns are independent when conditioned on the value of their variance (volatility), which itself varies in time randomly, then the distribution of returns is well described by the statistics of the sum of…
In this short paper we define the wealth process in a spin model for market microstructure, for individual agents and in aggregate. The agents in our model try to balance their desire to belong to the local majority (herding behavior),…
Scale-free power law structure describes complex networks derived from a wide range of real world processes. The extensive literature focuses almost exclusively on networks with power law exponent strictly larger than 2, which can be…
Scale independence is a ubiquitous feature of complex systems which implies a highly skewed distribution of resources with no characteristic scale. Research has long focused on why systems as varied as protein networks, evolution and stock…
In this work, we aim to reconcile several apparently contradictory observations in market microstructure: is the famous "square-root law" of metaorder impact, which decays with time, compatible with the random-walk nature of prices and the…
The concepts of scale invariance, self-similarity and scaling have been fruitfully applied to the study of price fluctuations in financial markets. After a brief review of the properties of stable Levy distributions and their applications…
In this paper we explain the wild fluctuations of financial prices from the intrinsic amplifying feedback of speculative supply and demand. Formally, we show that an asset return follows a multiplicative random growth with exogenous input,…
Factor models characterize the joint behavior of large sets of financial assets through a smaller number of underlying drivers. We develop a network-based framework in which factors emerge naturally from the structure of interactions among…
It is well known that Random Serial Dictatorship is strategy-proof and leads to a Pareto-Efficient outcome. We show that this result breaks down when individuals are allowed to make transfers, and adapt Random Serial Dictatorship to…
We introduce an autoregressive-type model of prices in financial market taking into account the self-modulation effect. We find that traders are mainly using strategies with weighted feedbacks of past prices. These feedbacks are responsible…
Standard approaches to the theory of financial markets are based on equilibrium and efficiency. Here we develop an alternative based on concepts and methods developed by biologists, in which the wealth invested in a financial strategy is…