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We model a closed economic system with interactions that generates the features of empirical wealth distribution across all wealth brackets, namely a Gibbsian trend in the lower and middle wealth range and a Pareto trend in the higher…
In this short paper we define the wealth process in a spin model for market microstructure, for individual agents and in aggregate. The agents in our model try to balance their desire to belong to the local majority (herding behavior),…
We show that large, slowly driven systems can evolve to a self-organized critical state where long range temporal correlations between bursts or avalanches produce low frequency $1/f^{\alpha}$ noise. The avalanches can occur instantaneously…
We review recent progress in modeling credit risk for correlated assets. We start from the Merton model which default events and losses are derived from the asset values at maturity. To estimate the time development of the asset values, the…
In this work we characterize sudden increases in the land price of certain urban areas, a phenomenon causing gentrification, via an extended Schelling model. An initial price rise forces some of the disadvantaged inhabitants out of the…
Using frequency distributions of daily closing price time series of several financial market indexes, we investigate whether the bias away from an equiprobable sequence distribution found in the data, predicted by algorithmic information…
In financial markets marked by inherent volatility, extreme events can result in substantial investor losses. This paper proposes a portfolio strategy designed to mitigate extremal risks. By applying extreme value theory, we evaluate the…
Experiments in various neural systems found avalanches: bursts of activity with characteristics typical for critical dynamics. A possible explanation for their occurrence is an underlying network that self-organizes into a critical state.…
Classical game theory is a powerful framework to analyze the strategic interactions among rational players. However, in many real-life scenarios, players choose actions based on their inherent natural tendencies rather than deliberate…
The emph{securities market} is the fundamental theoretical framework in economics and finance for resource allocation under uncertainty. Securities serve both to reallocate risk and to disseminate probabilistic information. emph{Complete}…
The existence of power-law distributions is only a first requirement in the validation of the critical behavior of a system. Long-range spatio-temporal correlations are fundamental for the spontaneous neuronal activity to be the expression…
We introduce a simple model for the size distribution of avalanches based on the idea that the front of an avalanche can be described by a directed random walk. The model captures some of the qualitative features of earthquakes, avalanches…
A financial market is a system resulting from the complex interaction between participants in a closed economy. We propose a minimal microscopic model of the financial market economy based on the real economy's symmetry constraint and…
Systemic risk arises as a multi-layer network phenomenon. Layers represent direct financial exposures of various types, including interbank liabilities, derivative- or foreign exchange exposures. Another network layer of systemic risk…
We present analytical investigations of a multiplicative stochastic process that models a simple investor dynamics in a random environment. The dynamics of the investor's budget, $x(t)$, depends on the stochasticity of the return on…
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 introduce a toy model displaying the avalanche dynamics of failure in scale-free networks. In the model, the network growth is based on the Barab\'asi and Albert model and each node is assigned a capacity or tolerance, which is constant…
In the last years efforts in econophysics have been shifted to study how network theory can facilitate understanding of complex financial markets. Main part of these efforts is the study of correlation-based hierarchical networks. This is…
Multiplicative random cascade model naturally reproduces the intermittency or multifractality, which is frequently shown among hierarchical complex systems such as turbulence and financial markets. As described herein, we investigate the…
We model financial transactions as random walks on activity-driven temporal networks. By enforcing fund conservation, our framework analytically derives heavy-tailed distributions for the stationary balances and transaction sizes.…