Related papers: Financial instability from local market measures
An interbank market lets participants pool the risk arising from the combination of illiquid investments and random withdrawals by depositors. But it also creates the potential for one bank's failure to trigger off avalanches of further…
Financial market is an example of complex system, which is characterized by a highly intricate organization and the emergence of collective behavior. In this paper, we quantify this emergent dynamics in the financial market by using…
In this paper we study the price dynamics in a simple model of financial markets with heterogeneous agents. We concentrate on how increases in the total number of active traders influences fluctuations of asset prices. We find that a…
We propose a new set of stylized facts quantifying the structure of financial markets. The key idea is to study the combined structure of both investment strategies and prices in order to open a qualitatively new level of understanding of…
In the paper, the martingales and super-martingales relative to a regular set of measures are systematically studied. The notion of local regular super-martingale relative to a set of equivalent measures is introduced and the necessary and…
Financial markets show a number of non-stationarities, ranging from volatility fluctuations over ever changing technical and regulatory market conditions to seasonalities. On the other hand, financial markets show various stylized facts…
Financial event studies, ubiquitous in finance research, typically use linear factor models with known factors to estimate abnormal returns and identify causal effects of information events. This paper demonstrates that when factor models…
In this brief review, we critically examine the recent work done on correlation-based networks in financial systems. The structure of empirical correlation matrices constructed from the financial market data changes as the individual stock…
In complex systems, many different parts interact in non-obvious ways. Traditional research focuses on a few or a single aspect of the problem so as to analyze it with the tools available. To get a better insight of phenomena that emerge…
In the information-based approach to asset pricing the market filtration is modelled explicitly as a superposition of signals concerning relevant market factors and independent noise. The rate at which the signal is revealed to the market…
One the one hand, rough volatility has been shown to provide a consistent framework to capture the properties of stock price dynamics both under the historical measure and for pricing purposes. On the other hand, market price of volatility…
This paper investigates how similarity in the informational representation of market states among Artificial Intelligence (AI) trading agents can generate systemic instability in financial markets. We construct a structural multi-agent…
Modern evolvements of the technologies have been leading to a profound influence on the financial market. The introduction of constituents like Exchange-Traded Funds, and the wide-use of advanced technologies such as algorithmic trading,…
With model uncertainty characterized by a convex, possibly non-dominated set of probability measures, the agent minimizes the cost of hedging a path dependent contingent claim with given expected success ratio, in a discrete-time,…
In order to figure out and to forecast the emergence phenomena of social systems, we propose several probabilistic models for the analysis of financial markets, especially around a crisis. We first attempt to visualize the collective…
We study a class of heterogeneous agent-based models which are based on a basic set of principles, and the most fundamental operations of an economic system: trade and product transformations. A basic guiding principle is scale invariance,…
A theoretical model of systemic-risk propagation of financial market is analyzed for stability. The state equation is an unsteady diffusion equation with a nonlinear logistic growth term, where the diffusion process captures the spread of…
Model uncertainty is a type of inevitable financial risk. Mistakes on the choice of pricing model may cause great financial losses. In this paper we investigate financial markets with mean-volatility uncertainty. Models for stock markets…
Starting from the global financial crisis to the more recent disruptions brought about by geopolitical tensions and public health crises, the volatility of risk in financial markets has increased significantly. This underscores the…
This paper develops a dynamic monetary model to study the (in)stability of the fractional reserve banking system. The model shows that the fractional reserve banking system can endanger stability in that equilibrium is more prone to exhibit…