Related papers: Impact is not just volatility
This paper derives explicit formulas for both the small and large time limits of the implied volatility in the minimal market model. It is shown that interest rates do impact on the implied volatility in the long run even though they are…
The trade size $\omega$ has direct impact on the price formation of the stock traded. Econophysical analyses of transaction data for the US and Australian stock markets have uncovered market-specific scaling laws, where a master curve of…
In this paper we explain the wild fluctuations of financial prices from the intrinsic amplifying feedback of speculative supply and demand. Formally, we show that an asset return follows a multiplicative random growth with exogenous input,…
We describe how the market-based average and volatility of the "actual" return, which the investors gain within their market sales, depend on the statistical moments, volatilities, and correlations of the current and past market trade…
What is the dominating mechanism of the price dynamics in financial systems is of great interest to scientists. The problem whether and how volatilities affect the price movement draws much attention. Although many efforts have been made,…
Fluctuation scaling is observed phenomenon from complex networks through finance to ecology. It means that the variance and the mean of a specific quantity are related as $\ev{\sigma^2|n}\propto \ev{n|A}^{2\alpha}$ with $1/2\geq \alpha \geq…
In certain bodies, like the Council of the EU, the member states have a voting weight which depends on the population of the re- spective state. In this article we ask the question which voting weight guarantees a `fair' representation of…
We examine two aspects of the mathematical basis for two-tier voting systems, such as that of the Council of the European Union. These aspects concern the use of square-root weights and the choice of quota. Square-root weights originate in…
We consider the randomness of market trade as the origin of price and return stochasticity. We look at time series of trade values and volumes as random variables during the averaging interval {\Delta} and describe the dependences of…
We investigate high frequency price dynamics in foreign exchange market using data from Reuters information system (the dataset has been provided to us by Ols en & Associates). In our analysis we show that a na\"ive approach to the…
We discuss - in what is intended to be a pedagogical fashion - a criterion, which is a lower bound on a certain ratio, for when a stock (or a similar instrument) is not a good investment in the long term, which can happen even if the…
Taylor's law, also known as fluctuation scaling in physics and the power-law variance function in statistics, is an empirical pattern widely observed across fields including ecology, physics, finance, and epidemiology. It states that the…
We assume the market price to diffuse in a hierarchical comb of barriers, the heights of which represent the importance of new information entering the market. We find fat tails with the desired exponent for the price change distribution,…
The average economic agent is often used to model the dynamics of simple markets, based on the assumption that the dynamics of many agents can be averaged over in time and space. A popular idea that is based on this seemingly intuitive…
A simple Ising spin model which can describe the mechanism of price formation in financial markets is proposed. In contrast to other agent-based models, the influence does not flow inward from the surrounding neighbors to the center site,…
Size varies. Small things are typically more frequent than large things. The logarithm of frequency often declines linearly with the logarithm of size. That power law relation forms one of the common patterns of nature. Why does the…
We introduce the term net-proliferation in the context of fisheries and establish relations between the proliferation and net-proliferation that are economically and sustainably favored. The resulting square root laws are analytically…
We investigate the joint dynamics of spot and implied volatility from an empirical perspective. We focus on the equity market with the SPX Index our underlying of choice. Using only observable quantities, we extract the instantaneous…
Crashes have fascinated and baffled many canny observers of financial markets. In the strict orthodoxy of the efficient market theory, crashes must be due to sudden changes of the fundamental valuation of assets. However, detailed empirical…
We present analytic and numerical results for two models, namely the minority model and the bar-attendance model, which offer simple paradigms for a competitive marketplace. Both models feature heterogeneous agents with bounded rationality…