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A characteristic feature of complex systems in general is a tight coupling between their constituent parts. In complex socio-economic systems this kind of behavior leads to self-organization, which may be both desirable (e.g. social…
We prove the existence of an equilibrium in a model with transaction costs and price impact where two agents are incentivized to trade towards a target. The two types of frictions -- price impact and transaction costs -- lead the agents to…
We address microscopic, agent based, and macroscopic, stochastic, modeling of the financial markets combining it with the exogenous noise. The interplay between the endogenous dynamics of agents and the exogenous noise is the primary…
We deal with the optimal execution problem when the broker's goal is to reach a performance barrier avoiding a downside barrier. The performance is provided by the wealth accumulated by trading in the market, the shares detained by the…
This paper highlights the role of risk neutral investors in generating endogenous bubbles in derivatives markets. We find that a market for derivatives, which has all the features of a perfect market except completeness and has some risk…
We study the prediction with expert advice setting, where the aim is to produce a decision by combining the decisions generated by a set of experts, e.g., independently running algorithms. We achieve the min-max optimal dynamic regret under…
Prediction problems in finance go beyond estimating the unknown parameters of a model (e.g. of expected returns). This is because such a model would have to include parameters governing the market participants' propensity to change their…
We propose a dynamical theory of market liquidity that predicts that the average supply/demand profile is V-shaped and {\it vanishes} around the current price. This result is generic, and only relies on mild assumptions about the order flow…
Operational disruptions in retail payments can induce behavioral responses that outlast technical recovery and may amplify liquidity stress. We propose a multi-agent model linking card payment outages to trust dynamics, channel avoidance,…
Financial event studies, ubiquitous in finance research, typically use linear factor models with known factors to estimate abnormal returns and identify causal effects of information events. This paper demonstrates that when factor models…
We investigate possible origins of trends using a deterministic threshold model, where we refer to long-term variabilities of price changes (price movements) in financial markets as trends. From the investigation we find two phenomena. One…
Extreme events have an important role which is sometime catastrophic in a variety of natural phenomena including climate, earthquakes and turbulence, as well as in man-made environments like financial markets. Statistical analysis and…
In this short note we discuss recent attempts to describe pre-crash market dynamics with analogies from theory of critical phenomena.
Starting from two case histories, where only after thorough Failure Analysis the suddenly appearance of a failure was linked to much earlier events, the possibility of improving the reliability and of adjusting the reliability prediction…
In speculative markets, risk-free profit opportunities are eliminated by traders exploiting them. Markets are therefore often described as "informationally efficient", rapidly removing predictable price changes, and leaving only residual…
Decisions taken in our everyday lives are based on a wide variety of information so it is generally very difficult to assess what are the strategies that guide us. Stock market therefore provides a rich environment to study how people take…
Chaos is widely understood as being a consequence of sensitive dependence upon initial conditions. This is the result of an instability in phase space, which separates trajectories exponentially. Here, we demonstrate that this criterion…
Scale invariance, collective behaviours and structural reorganization are crucial for portfolio management (portfolio composition, hedging, alternative definition of risk, etc.). This lack of any characteristic scale and such elaborated…
Abrupt shifts in ecosystems, brains, markets, and climate are often diagnosed as signs of approaching a tipping point, i.e. a critical bifurcation where stability is lost. Here we reveal a broader and more deceptive mechanism:…
We consider a competing risks model, in which system failures are due to one out of two mutually exclusive causes, formulated within the framework of shock models driven by bivariate Poisson process. We obtain the failure densities and the…