Related papers: Eroding market stability by proliferation of finan…
We explore the role that random arbitrage opportunities play in hedging financial derivatives. We extend the asymptotic pricing theory presented by Fedotov and Panayides [Stochastic arbitrage return and its implication for option pricing,…
We study the performance of general dynamic matching models. This model is defined by a connected graph, where nodes represent the class of items and the edges the compatibilities between items. Items of different classes arrive one by one…
A financial market is called "diverse" if no single stock is ever allowed to dominate the entire market in terms of relative capitalization. In the context of the standard Ito-process model initiated by Samuelson (1965) we formulate this…
Prices in financial markets exhibit extreme jumps far more often than can be accounted for by external news. Further, magnitudes of price changes are correlated over long times. These so called stylized facts are quantified by scaling laws…
This paper investigates how similarity in the informational representation of market states among Artificial Intelligence (AI) trading agents can generate systemic instability in financial markets. We construct a structural multi-agent…
Price-mediated contagion occurs when a positive feedback loop develops following a drop in asset prices which forces banks and other financial institutions to sell their holdings. Prior studies of such events fix the level of market…
A financial market comprising of a certain number of distinct companies is considered, and the following statement is proved: either a specific agent will surely beat the whole market unconditionally in the long run, or (and this "or" is…
Episodes of market crashes have fascinated economists for centuries. Although many academics, practitioners and policy makers have studied questions related to collapsing asset price bubbles, there is little consensus yet about their causes…
The dual crises of the sub-prime mortgage crisis and the global financial crisis has prompted a call for explanations of non-equilibrium market dynamics. Recently a promising approach has been the use of agent based models (ABMs) to…
Technological progress is leading to proliferation and diversification of trading venues, thus increasing the relevance of the long-standing question of market fragmentation versus consolidation. To address this issue quantitatively, we…
We consider a random financial network with a large number of agents. The agents connect through credit instruments borrowed from each other or through direct lending, and these create the liabilities. The settlement of the debts of various…
The theory of complex networks and of disordered systems is used to study the stability and dynamical properties of a simple model of material flow networks defined on random graphs. In particular we address instabilities that are…
In this paper, we examine in an abstract framework, how a tradeoff between efficiency and robustness arises in different dynamic oligopolistic market architectures. We consider a market in which there is a monopolistic resource provider and…
We consider the use of pricing as a regulatory mechanism when an unknown number of autonomous agents compete for access to a shared resource (possibly limited in volume or capacity). In standard dynamic pricing control systems, an…
This paper introduces an agent-based artificial financial market in which heterogeneous agents trade one single asset through a realistic trading mechanism for price formation. Agents are initially endowed with a finite amount of cash and a…
The purpose of this work is to explore the role that arbitrage opportunities play in pricing financial derivatives. We use a non-equilibrium model to set up a stochastic portfolio, and for the random arbitrage return, we choose a stationary…
Artificial intelligence (AI) can undermine financial stability because of malicious use, misinformation, misalignment, and the AI analytics market structure. The low frequency and uniqueness of financial crises, coupled with mutable and…
Modern economies evolved from simpler human exchanges into very convoluted systems. Today, a multitude of aspects can be regulated, tampered with, or left to chance; these are economic {\em degrees of freedom} which together shape the flow…
Persistent financial frictions - including price volatility, constrained credit access, and supply chain inefficiencies - have long hindered productivity and welfare in the global agricultural sector. This paper provides a theoretical and…
We examine the dynamics of informational efficiency in a market with asymmetrically informed, boundedly rational traders who adaptively learn optimal strategies using simple multiarmed bandit (MAB) algorithms. The strategies available to…