Related papers: Financial instability from local market measures
In normal times, it is assumed that financial institutions operating in non-overlapping sectors have complementary and distinct outcomes, typically reflected in mostly uncorrelated outcomes and asset returns. Such is the reasoning behind…
Many complex systems exhibit extreme events far more often than expected for a normal distribution. This work examines how self-similar bursts of activity across several orders of magnitude can emerge from first principles in systems that…
We exploit a continuous time random walk description of stock prices to obtain a fast and accurate evaluation of their volatility from intraday data. We show that financial markets are usefully described as open physical systems. Indeed we…
We investigate the behavior of systems of interacting diffusion processes, known as volatility-stabilized market models in the mathematical finance literature, when the number of diffusions tends to infinity. We show that, after an…
Crashes have fascinated and baffled many canny observers of financial markets. In the strict orthodoxy of the efficient market theory, crashes must be due to sudden changes of the fundamental valuation of assets. However, detailed empirical…
One of the most interesting problems discerned when applying the Black--Scholes model to financial derivatives, is reconciling the deviation between expected and observed values. In our recent work, we derived a new model based on the…
The statistical properties of a stochastic process may be described (1)by the expectation values of the observables, (2)by the probability distribution functions or (3)by probability measures on path space. Here an analysis of level (3) is…
The financial markets are understood as complex dynamical systems whose dynamics is analysed mostly using nonstationary and brief data sets that usually come from stock markets. For such data sets, a reliable method of analysis is based on…
We examine dynamic coupling and feedback effects between High Frequency Traders (HFTs) and how they can destabilize markets. We develop a general framework for modelling dynamic interaction based on recurrence relations, and use this to…
We amend and extend the Chiarella model of financial markets to deal with arbitrary long-term value drifts in a consistent way. This allows us to improve upon existing calibration schemes, opening the possibility of calibrating individual…
We investigate possible origins of trends using a deterministic threshold model, where we refer to long-term variabilities of price changes (price movements) in financial markets as trends. From the investigation we find two phenomena. One…
The optimal (`equilibrium') macroscopic properties of an economy with $N$ industries endowed with different technologies, $P$ commodities and one consumer are derived in the limit $N\to\infty$ with $n=N/P$ fixed using the replica method.…
Employing a recent technique which allows the representation of nonstationary data by means of a juxtaposition of locally stationary patches of different length, we introduce a comprehensive analysis of the key observables in a financial…
Investigation of the critical levels and catastrophes in the complex systems of different nature is useful and perspective. Mathematical modeling and analysis is presented for revealing and investigation of the phenomena and critical levels…
Following the financial crisis of 2007-2008, a deep analogy between the origins of instability in financial systems and complex ecosystems has been pointed out: in both cases, topological features of network structures influence how easily…
The objective of this work is the investigation of complexity, asymmetry, stochasticity and non-linearity of the financial and economic systems by using the tools of statistical mechanics and information theory. More precisely, this thesis…
Financial markets are a typical example of complex systems where interactions between constituents lead to many remarkable features. Here, we show that a pairwise maximum entropy model (or auto-logistic model) is able to describe switches…
We study the feasibility and noise sensitivity of portfolio optimization under some downside risk measures (Value-at-Risk, Expected Shortfall, and semivariance) when they are estimated by fitting a parametric distribution on a finite sample…
The instability of the financial system as experienced in recent years and in previous periods is often linked to credit defaults, i.e., to the failure of obligors to make promised payments. Given the large number of credit contracts, 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…