Related papers: Regulation Simulation
Limit Order Books (LOBs) serve as a mechanism for buyers and sellers to interact with each other in the financial markets. Modelling and simulating LOBs is quite often necessary for calibrating and fine-tuning the automated trading…
Stochastic portfolio theory aims at finding relative arbitrages, i.e. trading strategies which outperform the market with probability one. Functionally generated portfolios, which are deterministic functions of the market weights, are an…
Safety-critical applications require controllers/policies that can guarantee safety with high confidence. The control barrier function is a useful tool to guarantee safety if we have access to the ground-truth system dynamics. In practice,…
Decades of research in control theory have shown that simple controllers, when provided with timely feedback, can control complex systems. Pushing is an example of a complex mechanical system that is difficult to model accurately due to…
Financial derivatives have often been criticized as casino-style betting instruments. It turns out that many naive ways of making them are indeed equivalent to gambling. Fortunately, this inadvertent effect can be understood and prevented.…
Simulation Optimization (SO) refers to the optimization of an objective function subject to constraints, both of which can be evaluated through a stochastic simulation. To address specific features of a particular simulation---discrete or…
This paper proposes a simulation-based reinforcement learning algorithm for controlling systems with uncertain and varying system parameters. While simulators are useful for safely learning control policies, the reality gap remains a major…
We introduce preferential behavior into the study on statistical mechanics of money circulation. The computer simulation results show that the preferential behavior can lead to power laws on distributions over both holding time and amount…
The prevention of rapidly and steeply falling market prices is vital to avoid financial crisis. To this end, some stock exchanges implement a price limit or a circuit breaker, and there has been intensive investigation into which regulation…
Quantum theory is used to model secondary financial markets. Contrary to stochastic descriptions, the formalism emphasizes the importance of trading in determining the value of a security. All possible realizations of investors holding…
In the over-the-counter market in derivatives, we sometimes see large numbers of traders taking the same position and risk. When there is this kind of concentration in the market, the position impacts the pricings of all other derivatives…
Financial models do not merely analyse markets, but actively shape them. This effect, known as performativity, describes how financial theories and the subsequent actions based on them influence market processes, by creating self-fulfilling…
We present a simple order book mechanism that regulates an artificial financial market with self-organized criticality dynamics and fat tails of returns distribution. The model shows the role played by individual imitation in determining…
The ability to construct a realistic simulator of financial exchanges, including reproducing the dynamics of the limit order book, can give insight into many counterfactual scenarios, such as a flash crash, a margin call, or changes in…
We develop a new stock market index that captures the chaos existing in the market by measuring the mutual changes of asset prices. This new index relies on a tensor-based embedding of the stock market information, which in turn frees it…
Technical trading represents a class of investment strategies for Financial Markets based on the analysis of trends and recurrent patterns of price time series. According standard economical theories these strategies should not be used…
A financial market is a system resulting from the complex interaction between participants in a closed economy. We propose a minimal microscopic model of the financial market economy based on the real economy's symmetry constraint and…
This paper explores the utility of agent-based simulations in realistically modelling market structures and sheds light on the nuances of optimal dealer strategies. It underscores the contrast between conclusions drawn from probabilistic…
We consider a simplified version of the Wealth Game, which is an agent-based financial market model with many interesting features resembling the real stock market. Market makers are not present in the game so that the majority traders are…
In the context of understanding the nature of the risk transformation process of the financial system we propose an iterative risk-trading game between several agents who build their trading strategies based on a general utility setting.…