Related papers: Quantifying instabilities in Financial Markets
A key problem in financial mathematics is the forecasting of financial crashes: if we perturb asset prices, will financial institutions fail on a massive scale? This was recently shown to be a computationally intractable (NP-hard) problem.…
Measuring systemic risk or fragility of financial systems is a ubiquitous task of fundamental importance in analyzing market efficiency, portfolio allocation, and containment of financial contagions. Recent attempts have shown that…
Predicting panic is of critical importance in many areas of human and animal behavior, notably in the context of economics. The recent financial crisis is a case in point. Panic may be due to a specific external threat, or self-generated…
Corporate insolvency can have a devastating effect on the economy. With an increasing number of companies making expansion overseas to capitalize on foreign resources, a multinational corporate bankruptcy can disrupt the world's financial…
Financial markets are systems with the complex behavior, that can be hardly analyzed by means of linear methods. Recurrence Quantification Analysis (RQA) is a nonlinear methodology, which is able to work with the nonstationary and short…
Volatility is the canonical measure of financial risk, a role largely inherited from Modern Portfolio Theory. Yet, its universality rests on restrictive efficiency assumptions that render volatility, at best, an incomplete proxy for true…
This paper extends quantile factor analysis to a probabilistic variant that incorporates regularization and computationally efficient variational approximations. We establish through synthetic and real data experiments that the proposed…
The recent financial crisis has sharply revealed that current understanding of the global financial system is more than limited. In the recovery plan the confidence in the underlying theory is crucial. To address the problem we propose the…
Over the last two decades, financial systems have been studied and analysed from the perspective of complex networks, where the nodes and edges in the network represent the various financial components and the strengths of correlations…
We present a financial market model, characterized by self-organized criticality, that is able to generate endogenously a realistic price dynamics and to reproduce well-known stylized facts. We consider a community of heterogeneous traders,…
In this article we model chaotic dynamics in financial markets by treating the market price, and market makers' inventory, as anharmonic oscillators with a nonlinear coupling. The market makers' risk appetite being the key parameter that…
Prediction of events in financial markets is every investor's dream and, usually, wishful thinking. From a more general, economic and societal viewpoint, the identification of indicators for large events is highly desirable to assess…
Financial crises are a recurrent phenomenon with important effects on the real economy. The financial system is inherently fragile and it is therefore of great importance to be able to measure and characterize its systemic stability.…
Recent developments in the global liberalization of equity and currency markets, coupled to advances in trading technologies, are making markets increasingly interdependent. This increased fluidity raises questions about the stability of…
Global catastrophic risk events, such as nuclear war, pose a severe threat to the stability of international financial systems. As evidenced by even less severe scenarios like the Great Recession, an economic failure can propagate through…
The financial markets are understood as complex dynamical systems whose dynamics is analysed mostly using nonstationary and brief data sets that usually come from stock markets. For such data sets, a reliable method of analysis is based on…
Threats on the stability of a financial system may severely affect the functioning of the entire economy, and thus considerable emphasis is placed on the analyzing the cause and effect of such threats. The financial crisis in the current…
In this paper, we introduce quantile coherency to measure general dependence structures emerging in the joint distribution in the frequency domain and argue that this type of dependence is natural for economic time series but remains…
We examine how the most prevalent stochastic properties of key financial time series have been affected during the recent financial crises. In particular we focus on changes associated with the remarkable economic events of the last two…
This paper presents a new financial market simulator that may be used as a tool in both industry and academia for research in market microstructure. It allows multiple automated traders and/or researchers to simultaneously connect to an…