Related papers: Inferring Fundamental Value and Crash Nonlinearity…
Financial markets are well known for their dramatic dynamics and consequences that affect much of the world's population. Consequently, much research has aimed at understanding, identifying and forecasting crashes and rebounds in financial…
The Johansen-Ledoit-Sornette (JLS) model of rational expectation bubbles with finite-time singular crash hazard rates has been developed to describe the dynamics of financial bubbles and crashes. It has been applied successfully to a large…
We introduce the concept of "negative bubbles" as the mirror image of standard financial bubbles, in which positive feedback mechanisms may lead to transient accelerating price falls. To model these negative bubbles, we adapt the…
We study the Johansen-Ledoit-Sornette (JLS) model of financial market crashes (Johansen, Ledoit, and Sornette [2000] "Crashes as Critical Points." Int. J. Theor. Appl. Finan. 3(2) 219-255). On our view, the JLS model is a curious case from…
We applied the Johansen-Ledoit-Sornette (JLS) model to detect possible bubbles and crashes related to the Brexit/Bremain referendum scheduled for 23rd June 2016. Our implementation includes an enhanced model calibration using Genetic…
There are two major streams of literature on the modeling of financial bubbles: the strict local martingale framework and the Johansen-Ledoit-Sornette (JLS) financial bubble model. Based on a class of models that embeds the JLS model and…
We present a simple transformation of the formulation of the log-periodic power law formula of the Johansen-Ledoit-Sornette model of financial bubbles that reduces it to a function of only three nonlinear parameters. The transformation…
We study a rational expectation model of bubbles and crashes. The model has two components : (1) our key assumption is that a crash may be caused by local self-reinforcing imitation between noise traders. If the tendency for noise traders…
We construct a statistical indicator for the detection of short-term asset price bubbles based on the information content of bid and ask market quotes for plain vanilla put and call options. Our construction makes use of the martingale…
We study asset price bubbles in market models with proportional transaction costs $\lambda\in (0,1)$ and finite time horizon $T$ in the setting of [49]. By following [28], we define the fundamental value $F$ of a risky asset $S$ as the…
The bubble is a controversial and important issue. Many methods which based on the rational expectation have been proposed to detect the bubble. However, for some developing countries, epically China, the asset markets are so young that for…
We present a plausible micro-founded model for the previously postulated power law finite time singular form of the crash hazard rate in the Johansen-Ledoit-Sornette model of rational expectation bubbles. The model is based on a percolation…
In this study, we investigate asset price bubbles in a discrete-time, discrete-state market under model uncertainty and short sales prohibitions. Building on a new fundamental theorem of asset pricing and a superhedging duality in this…
The price-bubble and crash process formation is theoretically investigated in a two-asset equilibrium model. Sufficient and necessary conditions are derived for the existence of average equilibrium price dynamics of different agent-based…
Leverage is strongly related to liquidity in a market and lack of liquidity is considered a cause and/or consequence of the recent financial crisis. A repurchase agreement is a financial instrument where a security is sold simultaneously…
We simulate a simplified version of the price process including bubbles and crashes proposed in Kreuser and Sornette (2018). The price process is defined as a geometric random walk combined with jumps modelled by separate, discrete…
By combining (i) the economic theory of rational expectation bubbles, (ii) behavioral finance on imitation and herding of investors and traders and (iii) the mathematical and statistical physics of bifurcations and phase transitions, the…
Several authors have noticed the signature of log-periodic oscillations prior to large stock market crashes [cond-mat/9509033, cond-mat/9510036, Vandewalle et al 1998]. Unfortunately good fits of the corresponding equation to stock market…
We introduce a new diffusion process Xt to describe asset prices within an economic bubble cycle. The main feature of the process, which differs from existing models, is the drift term where a mean-reversion is taken based on an exponential…
We consider a simple stochastic differential equation for modeling bubbles in social context. A prime example is bubbles in asset pricing, but similar mechanisms may control a range of social phenomena driven by psychological factors (for…