Related papers: Robust Financial Bubbles
The financial crisis of 2008, which started with an initially well-defined epicenter focused on mortgage backed securities (MBS), has been cascading into a global economic recession, whose increasing severity and uncertain duration has led…
The paper introduces notions of robustness margins geared towards the analysis and design of systems that switch and oscillate. While such phenomena are ubiquitous in nature and in engineering, a theory of robustness for behaviors away from…
I study the limit of a large random economy, where a set of consumers invests in financial instruments engineered by banks, in order to optimize their future consumption. This exercise shows that, even in the ideal case of perfect…
In this paper we derive robust super- and subhedging dualities for contingent claims that can depend on several underlying assets. In addition to strict super- and subhedging, we also consider relaxed versions which, instead of eliminating…
Financial markets provide a natural quantitative lab for understanding some of the most advanced human behaviours. Among them is the use of mathematical tools known as financial instruments. Besides money, the two most fundamental financial…
We present a new framework for modeling the statistical behavior of both fully developed turbulence and short-term dynamics of financial markets based on the nonextensive thermostatistics proposed by Tsallis. We also show that intermittency…
We explore a stochastic model that enables capturing external influences in two specific ways. The model allows for the expression of uncertainty in the parametrisation of the stochastic dynamics and incorporates patterns to account for…
In physics the value of a theory is measured by its agreement with experimental data. But how should the physics community gauge the value of an emerging theory that has not been tested experimentally as of yet? With no reality check, a…
Volatility, as a primary indicator of financial risk, forms the foundation of classical frameworks such as Markowitz's Portfolio Theory and the Efficient Market Hypothesis (EMH). However, its conventional use rests on assumptions-most…
We introduce a framework for quantifying propagation of uncertainty arising in a dynamic setting. Specifically, we define dynamic uncertainty sets designed explicitly for discrete stochastic processes over a finite time horizon. These…
We study the regulation of a monopolistic firm using a robust-design approach. We solve for the policy that minimizes the regulator's worst-case regret, where the regret is the difference between his complete-information payoff minus his…
We consider fundamental questions of arbitrage pricing arising when the uncertainty model is given by a set of possible mutually singular probability measures. With a single probability model, essential equivalence between the absence of…
Model uncertainty has been one prominent issue both in the theory of risk measures and in practice such as financial risk management and regulation. Motivated by this observation, in this paper, we take a new perspective to describe the…
We introduce three measures which quantify the degree to which quantum systems possess the robustness exhibited by classical systems when subjected to continuous observation. Using these we show that for a fixed environmental interaction…
Stability is among the most important concepts in dynamical systems. Local stability is well-studied, whereas determining how "globally stable" a nonlinear system is very challenging. Over the last few decades, many different ideas have…
We introduce a robust belief-based measure of complexity. The idea is that task A is deemed more complex than task B if the probability of solving A correctly is smaller than the probability of solving B correctly regardless of the reward.…
Uncertainties influencing the dynamical systems pose a significant challenge in estimating the achievable performance of a controller aiming to control such uncertain systems. When the uncertainties are of stochastic nature, obtaining hard…
As demonstrated during the recent financial crisis, regulators require additional analytical tools to assess systemic risk in the financial sector. This paper describes one such tool; namely a novel market modeling and analysis capability.…
We develop a dynamic model of cascading failures in a financial network whereby cross-holdings are viewed as feedback, external assets investments as inputs and failure penalties as static nonlinearities. We provide sufficient milder and…
We study a notion of good-deal hedging, that corresponds to good-deal valuation for generalized good-deal constraints. Under model uncertainty about the market prices of risk of hedging assets, a robust approach leads to a reduction or even…