Related papers: On a Constructive Theory of Markets
This is the third paper in a series concerning the game-theoretic aspects of position-building while in competition. The first paper set forth foundations and laid out the essential goal, which is to minimize implementation costs in light…
Prediction markets are designed to elicit information from multiple agents in order to predict (obtain probabilities for) future events. A good prediction market incentivizes agents to reveal their information truthfully; such incentive…
Market efficiency at least requires the absence of weak arbitrage opportunities, but this is not sufficient to establish a situation where the market is sensitive, i.e., where it "fully reflects" or "rapidly adjusts to" some information…
The beautiful theory of statistical gambling, started by Dubins and Savage (for subfair games) and continued by Kelly and Breiman (for superfair games) has mostly been studied under the unrealistic assumption that we live in a continuous…
Although both data availability and the demand for accurate forecasts are increasing, collaboration between stakeholders is often constrained by data ownership and competitive interests. In contrast to recent proposals within cooperative…
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…
Designing a financial market that works well is very important for developing and maintaining an advanced economy, but is not easy because changing detailed rules, even ones that seem trivial, sometimes causes unexpected large impacts and…
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.…
This book consists of a selection of articles divided into three main themes: Statistics, Quantitative Trading, Psychology. These three arguments are indispensable for the development of a quantitative trading system. The order of the…
Market manipulation is a strategy used by traders to alter the price of financial securities. One type of manipulation is based on the process of buying or selling assets by using several trading strategies, among them spoofing is a popular…
Expanding the ideas of the author's paper 'Nonexpansive maps and option pricing theory' (Kibernetica 34:6 (1998), 713-724) we develop a pure game-theoretic approach to option pricing, by-passing stochastic modeling. Risk neutral…
We consider thin incomplete financial markets, where traders with heterogeneous preferences and risk exposures have motive to behave strategically regarding the demand schedules they submit, thereby impacting prices and allocations. We…
We consider a stochastic game-theoretic model of an investment market in continuous time with short-lived assets and study strategies, called survival, which guarantee that the relative wealth of an investor who uses such a strategy remains…
A novel algorithm for actively trading stocks is presented. While traditional expert advice and "universal" algorithms (as well as standard technical trading heuristics) attempt to predict winners or trends, our approach relies on…
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…
The efficient market hypothesis has been considered one of the most controversial arguments in finance, with the academia divided between who claims the impossibility of beating the market and who believes that it is possible to gain over…
The importance of predicting stock market prices cannot be overstated. It is a pivotal task for investors and financial institutions as it enables them to make informed investment decisions, manage risks, and ensure the stability of the…
We consider a simplified version of the Wealth Game, which is an agent-based financial market model with many interesting features resembling the real stock market. Market makers are not present in the game so that the majority traders are…
Standard approaches to the theory of financial markets are based on equilibrium and efficiency. Here we develop an alternative based on concepts and methods developed by biologists, in which the wealth invested in a financial strategy is…
Over the past few years, the futures market has been successfully developing in the North-West region. Futures markets are one of the most effective and liquid-visible trading mechanisms. A large number of buyers are forced to compete with…