Related papers: Systematic Noise: Micro-movements in Equity Option…
Complex systems comprise a large number of interacting elements, whose dynamics is not always a priori known. In these cases -- in order to uncover their key features -- we have to turn to empirical methods, one of which was recently…
We develop a behavioral model for liquidity and volatility based on empirical regularities in trading order flow in the London Stock Exchange. This can be viewed as a very simple agent based model in which all components of the model are…
In black-box optimization, noise in the objective function is inevitable. Noise disrupts the ranking of candidate solutions in comparison-based optimization, possibly deteriorating the search performance compared with a noiseless scenario.…
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…
The volatility characterizes the amplitude of price return fluctuations. It is a central magnitude in finance closely related to the risk of holding a certain asset. Despite its popularity on trading floors, the volatility is unobservable…
The price fluctuations in the financial markets are the result of the individual operations by many individual investors. However for many decades the finacial theory did not use directly this "microscopic representation". The difficulties…
Stochastic phenomena in which the noise amplitude is proportional to the fluctuating variable itself, usually called {\it multiplicative noise}, appear ubiquitously in physics, biology, economy and social sciences. The properties of…
We introduce a new model for describing the fluctuations of a tick-by-tick single asset price. Our model is based on Markov renewal processes. We consider a point process associated to the timestamps of the price jumps, and marks associated…
One of the shortcomings of the Black and Scholes model on option pricing is the assumption that trading of the underlying asset does not affect the price of that asset. This assumption can be fulfilled only in perfectly liquid markets.…
Stock prices often react sluggishly to news, producing gradual jumps and jump delays. Econometricians typically treat these sluggish reactions as microstructure effects and settle for a coarse sampling grid to guard against them.…
We consider a market of risky financial assets whose participants are an informed trader, a representative uninformed trader, and noisy liquidity providers. We prove the existence of a market-clearing equilibrium when the insider…
Black-Scholes (BS) is the standard mathematical model for option pricing in financial markets. Option prices are calculated using an analytical formula whose main inputs are strike (at which price to exercise) and volatility. The BS…
Using a recently developed method of noise level estimation that makes use of properties of the coarse grained-entropy we have analyzed the noise level for the Dow Jones index and a few stocks from the New York Stock Exchange. We have found…
Using the most comprehensive source of commercially available data on the US National Market System, we analyze all quotes and trades associated with Dow 30 stocks in 2016 from the vantage point of a single and fixed frame of reference. We…
Recent years have seen an unprecedented rise of the role that technology plays in all aspects of human activities. Unavoidably, technology has heavily entered the Capital Markets trading space, to the extent that all major exchanges are now…
We develop a theory for option pricing with perfect hedging in an inefficient market model where the underlying price variations are autocorrelated over a time tau. This is accomplished by assuming that the underlying noise in the system is…
The effect of noise in the input data for learning potential energy surfaces (PESs) based on neural networks for chemical applications is assessed. Noise in energies and forces can result from aleatoric and epistemic errors in the quantum…
In this paper, we build tests for the presence of residual noise in a model where the market microstructure noise is a known parametric function of some variables from the limit order book. The tests compare two distinct quasi-maximum…
We analyse all Mini Flash Crashes (or Flash Equity Failures) in the US equity markets in the four most volatile months during 2006-2011. In contrast to previous studies, we find that Mini Flash Crashes are the result of regulation framework…
Algorithmic recommendation based on noisy preference measurement is prevalent in recommendation systems. This paper discusses the consequences of such recommendation on market concentration and inequality. Binary types denoting a…