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In this work we investigate the inefficiency of the electricity system with strategic agents. Specifically, we prove that without a proper control the total demand of an inefficient system is at most twice the total demand of the optimal…
Financial markets are prominent examples for highly non-stationary systems. Sample averaged observables such as variances and correlation coefficients strongly depend on the time window in which they are evaluated. This implies severe…
We build a simple diagnostic criterion for approximate factor structure in large cross-sectional equity datasets. Given a model for asset returns with observable factors, the criterion checks whether the error terms are weakly…
We study the prediction with expert advice setting, where the aim is to produce a decision by combining the decisions generated by a set of experts, e.g., independently running algorithms. We achieve the min-max optimal dynamic regret under…
We show that financial correlations exhibit a non-trivial dynamic behavior. We introduce a simple phenomenological model of a multi-asset financial market, which takes into account the impact of portfolio investment on price dynamics. This…
Modeling the purposeful behavior of imperfect agents from a small number of observations is a challenging task. When restricted to the single-agent decision-theoretic setting, inverse optimal control techniques assume that observed behavior…
In this review article we explore several recent advances in the quantitative modeling of financial markets. We begin with the Efficient Markets Hypothesis and describe how this controversial idea has stimulated a number of new directions…
The underlying physics of basketball shooting seems to be a straightforward example of the Newtonian mechanics that can easily be traced by numerical methods. However, a human basketball player does not make use of all the possible…
We study mechanism design when agents may have hidden secondary goals which will manifest as non-trivial preferences among outcomes for which their primary utility is the same. We show that in such cases, a mechanism is robust against…
We consider a system in which a group of agents represented by the vertices of a graph synchronously update their opinion based on that of their neighbours. If each agent adopts a positive opinion if and only if that opinion is sufficiently…
There is growing concern about tacit collusion using algorithmic pricing, and regulators need tools to help detect the possibility of such collusion. This paper studies how to design a hypothesis testing framework in order to decide whether…
The dynamics of the equal-time cross-correlation matrix of multivariate financial time series is explored by examination of the eigenvalue spectrum over sliding time windows. Empirical results for the S&P 500 and the Dow Jones Euro Stoxx 50…
This paper develops a mathematical framework for building a position in a stock over a fixed period of time while in competition with one or more other traders doing the same thing. We develop a game-theoretic framework that takes place in…
Financial markets are a classical example of complex systems as they comprise many interacting stocks. As such, we can obtain a surprisingly good description of their structure by making the rough simplification of binary daily returns.…
We model the impact costs of a strategy that trades a basket of correlated instruments, by extending to the multivariate case the linear propagator model previously used for single instruments. Our specification allows us to calibrate a…
In this article, the long-term behavior of the stock market index of the New York Stock Exchange is studied, for the period 1950 to 2013. Specifically, the CRSP Value-Weighted and CRSP Equal-Weighted index are analyzed in terms of market…
Here we introduce the idea of using rational expectations, a core concept in economics and finance, as a tool to predict the optimal failure time for a wide class of weighted k-out-of-n reliability systems. We illustrate the concept by…
A new approach to the understanding of complex behavior of financial markets index using tools from thermodynamics and statistical physics is developed. Physical complexity, a magnitude rooted in Kolmogorov-Chaitin theory is applied to…
It is commonly believed that the correlations between stock returns increase in high volatility periods. We investigate how much of these correlations can be explained within a simple non-Gaussian one-factor description with time…
We study the optimal portfolio liquidation problem over a finite horizon in a limit order book with bid-ask spread and temporary market price impact penalizing speedy execution trades. We use a continuous-time modeling framework, but in…