Related papers: Quantifying instabilities in Financial Markets
Risks threatening modern societies form an intricately interconnected network that often underlies crisis situations. Yet, little is known about how risk materializations in distinct domains influence each other. Here we present an approach…
We introduce a simple model for addressing the controversy in the study of financial systems, sometimes taken as brownian-like processes and other as critical systems with fluctuations of arbitrary magnitude. The model considers a…
Financial models do not merely analyse markets, but actively shape them. This effect, known as performativity, describes how financial theories and the subsequent actions based on them influence market processes, by creating self-fulfilling…
This paper discusses serious drawbacks of existing knowledge in macroeconomics and finance in explaining and predicting economic and financial phenomena. Complexity science is proposed as an alternative approach to be used in order to…
Recently, the concept of tail dependence has been discussed in financial applications related to market or credit risk. The multivariate extreme value theory is a proper tool to measure and model dependence, for example, of large loss…
The study of systemic risk is often presented through the analysis of several measures referring to quantities used by practitioners and policy makers. Almost invariably, those measures evaluate the size of the impact that exogenous events…
Catastrophic regime shifts in complex natural systems may be averted through advanced detection. Recent work has provided a proof-of-principle that many systems approaching a catastrophic transition may be identified through the lens of…
We analyze the performance of RiskMetrics, a widely used methodology for measuring market risk. Based on the assumption of normally distributed returns, the RiskMetrics model completely ignores the presence of fat tails in the distribution…
In recent years there has been a closer interrelationship between several scientific areas trying to obtain a more realistic and rich explanation of the natural and social phenomena. Among these it should be emphasized the increasing…
The informational context is regularly questioned in a transitional economic regime like the one implemented in China or Vietnam. This article investigates this issue and the predictive power of fundamental analysis in such context and more…
In this study, we utilize the Kalman-Filter analysis to assess market efficiency in major stock markets. The Kalman-Filter operates in two stages, assuming that the data contains a consistent trendline representing the true market value…
Many studies have shown that there are good reasons to claim very low predictability of currency nevertheless, the deviations from true randomness exist which have potential predictive and prognostic power [J.James, Quantitative finance 3…
We propose a general interpretation for long-range correlation effects in the activity and volatility of financial markets. This interpretation is based on the fact that the choice between `active' and `inactive' strategies is subordinated…
This paper describes an approach to economics that is inspired by quantum computing, and is motivated by the need to develop a consistent quantum mathematical framework for economics. The traditional neoclassical approach assumes that…
Using the eigenvalues and eigenvectors of correlations matrices of some of the main financial market indices in the world, we show that high volatility of markets is directly linked with strong correlations between them. This means that…
Financial markets have developed a lot of strategies to control risks induced by market fluctuations. Mathematics has emerged as the leading discipline to address fundamental questions in finance as asset pricing model and hedging…
Country instability is a global issue, with unpredictably high levels of instability thwarting socio-economic growth and possibly causing a slew of negative consequences. As a result, uncertainty prediction models for a country are becoming…
This paper examines quantile dependence between international stock markets and evaluates its use for improving volatility forecasting. First, we analyze quantile dependence and directional predictability between the US stock market and…
This review is a partial synthesis of the book ``Why stock market crash'' (Princeton University Press, January 2003), which presents a general theory of financial crashes and of stock market instabilities that his co-workers and the author…
We propose a new measure of systemic risk to analyze the impact of the major financial market turmoils in the stock markets from 2000 to 2023 in the USA, Europe, Brazil, and Japan. Our Implied Volatility Realized Volatility Systemic Risk…