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Episodes of market crashes have fascinated economists for centuries. Although many academics, practitioners and policy makers have studied questions related to collapsing asset price bubbles, there is little consensus yet about their causes…
This paper introduces forward-looking measures of the network connectedness of fears in the financial system, arising due to the good and bad beliefs of market participants about uncertainty that spreads unequally across a network of banks.…
We propose a non linear Langevin equation as a model for stock market fluctuations and crashes. This equation is based on an identification of the different processes influencing the demand and supply, and their mathematical transcription.…
The occurrence of aftershocks following a major financial crash manifests the critical dynamical response of financial markets. Aftershocks put additional stress on markets, with conceivable dramatic consequences. Such a phenomenon has been…
All types of networks arise as intricate combinations of dyadic building blocks formed by pairs of vertices. In directed networks, the dyadic patterns are entirely determined by reciprocity, i.e. the tendency to form, or to avoid, mutual…
A minimal stochastic dynamical model of the interbank network is introduced, with linear interactions mediated by an integral of recent variations. Defining stress as the variance over the banks' states, the interaction correction to the…
Management of systemic risk in financial markets is traditionally associated with setting (higher) capital requirements for market participants. There are indications that while equity ratios have been increased massively since the…
We introduce a new measure of activity of financial markets that provides a direct access to their level of endogeneity. This measure quantifies how much of price changes are due to endogenous feedback processes, as opposed to exogenous…
Systemic liquidity risk, defined by the IMF as "the risk of simultaneous liquidity difficulties at multiple financial institutions", is a key topic in macroprudential policy and financial stress analysis. Specialized models to simulate…
Eisenberg and Noe (2001) analyze systemic risk for financial institutions linked by a network of liabilities. They show that the solution to their model is unique when the financial system is satisfies a regularity condition involving risk…
In recent years networks have gained unprecedented attention in studying a broad range of topics, among them in complex systems research. In particular, multi-agent systems have seen an increased recognition of the importance of the…
Based on an empirical analysis of the network structure of the Austrian inter-bank market, we study the flow of funds through the banking network following exogenous shocks to the system. These shocks are implemented by stochastic changes…
Conventional economic and socio-behavioural models assume perfect symmetric access to information and rational behaviour among interacting agents in a social system. However, real-world events and observations appear to contradict such…
Widespread deployment of societal-scale machine learning systems necessitates a thorough understanding of the resulting long-term effects these systems have on their environment, including loss of trustworthiness, bias amplification, and…
We present a dynamical theory of asset price bubbles that exhibits the appearance of bubbles and their subsequent crashes. We show that when speculative trends dominate over fundamental beliefs, bubbles form, leading to the growth of asset…
We study the ex-ante minimization of market inefficiency, defined in terms of minimum deviation of market prices from fundamental values, from a centralized planner's perspective. Prices are pressured from exogenous trading actions of…
We design a system for risk-analyzing and pricing portfolios of non-performing consumer credit loans. The rapid development of credit lending business for consumers heightens the need for trading portfolios formed by overdue loans as a…
We introduce a new framework to model interactions among agents which seek to trade to minimize their risk with respect to some future outcome. We quantify this risk using the concept of risk measures from finance, and introduce a class of…
In this paper we estimate the propagation of liquidity shocks through interbank markets when the information about the underlying credit network is incomplete. We show that techniques such as Maximum Entropy currently used to reconstruct…
Previous studies of the stock price response to individual trades focused on single stocks. We empirically investigate the price response of one stock to the trades of other stocks. How large is the impact of one stock on others and vice…