Related papers: Robust Financial Bubbles
Robust optimization methods have shown practical advantages in a wide range of decision-making applications under uncertainty. Recently, their efficacy has been extended to multi-period settings. Current approaches model uncertainty either…
This paper studies the robust optimal gain selection problem for financial trading systems, formulated within a \emph{double linear policy} framework, which allocates capital across long and short positions. The key objective is to…
We consider microstructure as an arbitrary contamination of the underlying latent securities price, through a Markov kernel $Q$. Special cases include additive error, rounding and combinations thereof. Our main result is that, subject to…
The problem of non-stationarity in financial markets is discussed and related to the dynamic nature of price volatility. A new measure is proposed for estimation of the current asset volatility. A simple and illustrative explanation is…
This paper studies the equilibrium price of a continuous time asset traded in a market with heterogeneous investors. We consider a positive mean reverting asset and two groups of investors who have different beliefs on the speed of mean…
This paper addresses the challenge of model uncertainty in quantitative finance, where decisions in portfolio allocation, derivative pricing, and risk management rely on estimating stochastic models from limited data. In practice, the…
Models necessarily capture only parts of a reality. Prediction models aim at capturing a future reality. In this paper we address the question of how the future is constructed (or: imagined) in an investment context where market…
We consider the robust utility maximization using a static holding in derivatives and a dynamic holding in the stock. There is no fixed model for the price of the stock but we consider a set of probability measures (models) which are not…
A definition of qualitative robustness for point estimators in general statistical models is proposed. Some criteria for robustness are established and applied to estimators in parametric, semiparametric, and nonparametric models. In…
A trading system is said to be {robust} if it generates a robust return regardless of market direction. To this end, a consistently positive expected trading gain is often used as a robustness metric for a trading system. In this paper, we…
We present a simple agent-based model to study the development of a bubble and the consequential crash and investigate how their proximate triggering factor might relate to their fundamental mechanism, and vice versa. Our agents invest…
In Basili and Pratelli (2024), a novel and coherent concept of interval probability measures has been introduced, providing a method for representing imprecise probabilities and uncertainty. Within the framework of set algebra, we…
Robust control is a core approach for controlling systems with performance guarantees that are robust to modeling error, and is widely used in real-world systems. However, current robust control approaches can only handle small system…
We show that infinite divisibility of a trading commodity leads to a self-sustained price bubble when traders use adaptive investment strategies. The adaptive strategy can be viewed as a psychological response of a trader to the situation…
Natural systems are remarkably robust and resilient, maintaining essential functions despite variability, uncertainty, and hostile conditions. Understanding these nonlinear, dynamic behaviours is challenging because such systems involve…
Cryptocurrencies are examined through the asset flow equations and experimental asset markets. Since tangible value of a typical cryptocurrency is non-existent, the theory suggests that price will gravitate toward liquidity value, i.e., the…
This paper addresses a fundamental and important question in control: under what conditions does there fail to exist a robust control policy that keeps the state of a constrained linear system within a target set, despite bounded…
This paper introduces a novel robust trading paradigm, called \textit{multi-double linear policies}, situated within a \textit{generalized} lattice market. Distinctively, our framework departs from most existing robust trading strategies,…
In the area of traditional physics the atomic nucleus belongs to the most complex systems. It involves essentially all elements that characterize complexity including the most distinctive one whose essence is a permanent coexistence of…
Consider an insurance company exposed to a stochastic economic environment that contains two kinds of risk. The first kind is the insurance risk caused by traditional insurance claims, and the second kind is the financial risk resulting…