Related papers: Noise, risk premium, and bubble
This paper studies the problem of procuring diverse resources in a forward market to cover a set $\bf{E}$ of uncertain demand signals $\bf{e}$. We consider two scenarios: (a) $\bf{e}$ is revealed all at once by an oracle (b) $\bf{e}$…
A dynamical system is said to undergo rate-induced tipping when it fails to track its quasi-equilibrium state due to an above-critical-rate change of system parameters. We study a prototypical model for rate-induced tipping, the saddle-node…
This work employs some techniques in order to filter random noise from the information provided by minimum spanning trees obtained from the correlation matrices of international stock market indices prior to and during times of crisis. The…
The formation of price in a financial market is modelled as a chain of Ising spin with three fundamental figures of trading. We investigate the time behaviour of the model, and we compare the results with the real EURO/USD change rate. By…
Much research has been conducted arguing that tipping points at which complex systems experience phase transitions are difficult to identify. To test the existence of tipping points in financial markets, based on the alternating offer…
Jumps and market microstructure noise are stylized features of high-frequency financial data. It is well known that they introduce bias in the estimation of volatility (including integrated and spot volatilities) of assets, and many methods…
Accurate prediction of electricity prices plays an essential role in the electricity market. To reflect the uncertainty of electricity prices, price intervals are predicted. This paper proposes a novel prediction interval construction…
For a commodity spot price dynamics given by an Ornstein-Uhlenbeck process with Barndorff-Nielsen and Shephard stochastic volatility, we price forwards using a class of pricing measures that simultaneously allow for change of level and…
We seek to deepen understanding of the micro-foundations of institutionalization while contributing to a sociological theory of markets by investigating the puzzle of price bubbles in financial markets. We find that such markets, despite…
A simple spin model is studied, motivated by the dynamics of traders in a market where expectation bubbles and crashes occur. The dynamics is governed by interactions which are frustrated across different scales: While ferromagnetic…
This paper aims at designing the different important components of a semi-closed simulated stock market (pricing mechanism, stock allocation and news generation). The purpose is to understand the interactions of the different aspects within…
In this paper incomplete-information models are developed for the pricing of securities in a stochastic interest rate setting. In particular we consider credit-risky assets that may include random recovery upon default. The market…
Filtering signal from noise is fundamental to accurately assessing spillover effects in financial markets. This study investigates denoised return and volatility spillovers across a diversified set of markets, spanning developed and…
If pricing kernels are assumed non-negative then the inverse problem of finding the pricing kernel is well-posed. The constrained least squares method provides a consistent estimate of the pricing kernel. When the data are limited, a new…
The valuation process that economic agents undergo for investments with uncertain payoff typically depends on their statistical views on possible future outcomes, their attitudes toward risk, and, of course, the payoff structure itself.…
In order to understand the origin of stock price jumps, we cross-correlate high-frequency time series of stock returns with different news feeds. We find that neither idiosyncratic news nor market wide news can explain the frequency and…
We introduce a stochastic price model where, together with a random component, a moving average of logarithmic prices contributes to the price formation. Our model is tested against financial datasets, showing an extremely good agreement…
The Sornette-Ide differential equation of herding and rational trader behaviour together with very small random noise is shown to lead to crashes or bubbles where the price change goes to infinity after an unpredictable time. About 100 time…
We explore nature of price formation in financial markets and develop a theory of bid and ask price dynamics in which the two prices form due to quantum-chaotic interaction between buy and sell orders. In this model bid and ask prices are…
Little is known about the microscopic physics that gave rise to inflation in our universe. There are many reasons to wonder if the underlying description requires a careful arrangement of ingredients or if inflation was the result of an…