Related papers: Quantifying instabilities in Financial Markets
The complexity of financial markets arise from the strategic interactions among agents trading stocks, which manifest in the form of vibrant correlation patterns among stock prices. Over the past few decades, complex financial markets have…
Financial market risk forecasting involves applying mathematical models, historical data analysis and statistical methods to estimate the impact of future market movements on investments. This process is crucial for investors to develop…
The instability of the financial system as experienced in recent years and in previous periods is often linked to credit defaults, i.e., to the failure of obligors to make promised payments. Given the large number of credit contracts, this…
The latest financial crisis has painfully revealed the dangers arising from a globally interconnected financial system. Conventional approaches based on the notion of the existence of equilibrium and those which rely on statistical…
The credit crisis roiling the world's financial markets will likely take years and entire careers to fully understand and analyze. A short empirical investigation of the current trends, however, demonstrates that the losses in certain…
Identifying macroeconomic events that are responsible for dramatic changes of economy is of particular relevance to understand the overall economic dynamics. We introduce an open-source available efficient Python implementation of a…
The instability of historical risk factor correlations renders their use in estimating portfolio risk extremely questionable. In periods of market stress correlations of risk factors have a tendency to quickly go well beyond estimated…
In order to figure out and to forecast the emergence phenomena of social systems, we propose several probabilistic models for the analysis of financial markets, especially around a crisis. We first attempt to visualize the collective…
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…
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…
Following the thermodynamic formulation of multifractal measure that was shown to be capable of detecting large fluctuations at an early stage, here we propose a new index which permits us to distinguish events like financial crisis in real…
This paper introduces a global stock market volatility forecasting model that enhances forecasting accuracy and practical utility in real-world financial decision-making by integrating dynamic graph structures and encompassing all active…
Assessing the stability of economic systems is a fundamental research focus in economics, that has become increasingly interdisciplinary in the currently troubled economic situation. In particular, much attention has been devoted to the…
In this paper, our objective is to develop a multi-agent financial system that incorporates simulated trading, a technique extensively utilized by financial professionals. While current LLM-based agent models demonstrate competitive…
Here we present a novel approach to statistical analysis of financial time series. The approach is based on $n$-grams frequency dictionaries derived from the quantized market data. Such dictionaries are studied by evaluating their…
It has been assumed that arbitrage profits are not possible in efficient markets, because future prices are not predictable. Here we show that predictability alone is not a sufficient measure of market efficiency. We instead propose to…
This paper develops a two-step estimation methodology, which allows us to apply catastrophe theory to stock market returns with time-varying volatility and model stock market crashes. Utilizing high frequency data, we estimate the daily…
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.…
Measuring the corporate default risk is broadly important in economics and finance. Quantitative methods have been developed to predictively assess future corporate default probabilities. However, as a more difficult yet crucial problem,…
We show that financial correlations exhibit a non-trivial dynamic behavior. We introduce a simple phenomenological model of a multi-asset financial market, which takes into account the impact of portfolio investment on price dynamics. This…