Related papers: Dynamic Coupling and Market Instability
Stochastic feedback systems give rise to a variety of notions of stability. The conditions for the stability of the median, mean, and variance stability conditions differ. These conditions can be stated explicitly for scalar discrete-time…
We introduce a simple dynamical model of two interacting communities whose elements are subject to stochastic discrete-time updates governed by only bilinear interactions. When the intra- and inter-couplings are cooperative, the two…
We investigate a market with a normal-speed informed trader (IT) who may employ mixed strategy and multiple anticipatory high-frequency traders (HFTs) who are under different inventory pressures, in a three-period Kyle's model. The pure-…
We present a financial market model, characterized by self-organized criticality, that is able to generate endogenously a realistic price dynamics and to reproduce well-known stylized facts. We consider a community of heterogeneous traders,…
Many complex systems exhibit extreme events far more often than expected for a normal distribution. This work examines how self-similar bursts of activity across several orders of magnitude can emerge from first principles in systems that…
Many empirical studies have discussed market liquidity, which is regarded as a measure of a booming financial market. Further, various indicators for objectively evaluating market liquidity have also been proposed and their merits have been…
We introduce a stochastic heterogeneous interacting-agent model for the short-time non-equilibrium evolution of excess demand and price in a stylized asset market. We consider a combination of social interaction within peer groups and…
We study how information perturbations can destabilize two-sided matching markets. In our model, agents arrive on the market over two periods, while agents in the first period do not know the types of those arriving later. Agents already…
The dynamics of a stock market with heterogeneous agents is discussed in the framework of a recently proposed spin model for the emergence of bubbles and crashes. We relate the log returns of stock prices to magnetization in the model and…
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…
This paper studies the switching of trading strategies and its effect on the market volatility in a continuous double auction market. We describe the behavior when some uninformed agents, who we call switchers, decide whether or not to pay…
Classical Kyle-type models of informed trading typically treat noise trader demand as purely exogenous. In reality, many market participants react to price movements and news, generating feedback effects that can significantly alter market…
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…
An agent-based model with interacting low frequency liquidity takers inter-mediated by high-frequency liquidity providers acting collectively as market makers can be used to provide realistic simulated price impact curves. This is possible…
In complex systems, many different parts interact in non-obvious ways. Traditional research focuses on a few or a single aspect of the problem so as to analyze it with the tools available. To get a better insight of phenomena that emerge…
This work builds upon the long-standing conjecture that linear diffusion models are inadequate for complex market dynamics. Specifically, it provides experimental validation for the author's prior arguments that realistic market dynamics…
A microeconomic approach is proposed to derive the fluctuations of risky asset price, where the market participants are modeled as prospect trading agents. As asset price is generated by the temporary equilibrium between demand and supply,…
Based on the tick-by-tick stock prices from the German and American stock markets, we study the statistical properties of the distribution of the individual stocks and the index returns in highly collective and noisy intervals of trading,…
In this paper, we study the herding phenomena in financial markets arising from the combined effect of (1) non-coordinated collective interactions between the market players and (2) concurrent reactions of market players to dynamic market…
We analyze the stability of financial investment networks, where financial institutions hold overlapping portfolios of assets. We consider the effect of portfolio diversification and heterogeneous investments using a random matrix dynamical…