Related papers: Dynamic Coupling and Market Instability
This paper develops a model for option market making in which the hedging activity of the market maker generates price impact on the underlying asset. The option order flow is modeled by Cox processes, with intensities depending on the…
This paper develops a dynamic factor model in which common level and volatility factors evolve jointly, allowing conditional means and variances to interact endogenously within a large-information setting. The joint evolution of these…
We focus on the problem of market making in high-frequency trading. Market making is a critical function in financial markets that involves providing liquidity by buying and selling assets. However, the increasing complexity of financial…
We attempt to explain stock market dynamics in terms of the interaction among three variables: market price, investor opinion and information flow. We propose a framework for such interaction and apply it to build a model of stock market…
Output feedback stabilization of control systems is a crucial issue in engineering. Most of these systems are not uniformly observable, which proves to be a difficulty to move from state feedback stabilization to dynamic output feedback…
Market Mill is a complex dependence pattern leading to nonlinear correlations and predictability in intraday dynamics of stock prices. The present paper puts together previous efforts to build a dynamical model reflecting the market mill…
This paper identifies an important bias - termed dynamic bias - in fixed effects panel estimators that arises when dynamic feedback is ignored in the estimating equation. Dynamic feedback occurs if past outcomes impact current outcomes, a…
Using microscopic price models based on Hawkes processes, it has been shown that under some no-arbitrage condition, the high degree of endogeneity of markets together with the phenomenon of metaorders splitting generate rough Heston-type…
In this paper we present a continuous time dynamical model of heterogeneous agents interacting in a financial market where transactions are cleared by a market maker. The market is composed of fundamentalist, trend following and contrarian…
A microscopic model of financial markets is considered, consisting of many interacting agents (spins) with global coupling and discrete-time thermal bath dynamics, similar to random Ising systems. The interactions between agents change…
In an extended Kyle's model, the interactions between a large informed trader and a high-frequency trader (HFT) who can anticipate the former's incoming order are studied. We find that, in equilibrium, HFT may play the role of Small-IT or…
We explore the dynamical consequences of switching the coupling form in a system of coupled oscillators. We consider two types of switching, one where the coupling function changes periodically and one where it changes probabilistically. We…
Biondi et al. (2012) develop an analytical model to examine the emergent dynamic properties of share market price formation over time, capable to capture important stylized facts. These latter properties prove to be sensitive to regulatory…
Time-delayed feedback methods can be used to control unstable periodic orbits as well as unstable steady states. We present an application of extended time delay autosynchronization introduced by Socolar et al. to an unstable focus. This…
We apply the potential force estimation method to artificial time series of market price produced by a deterministic dealer model. We find that dealers' feedback of linear prediction of market price based on the latest mean price changes…
We compare the predictions of the stationary Kyle model, a microfounded multi-step linear price impact model in which market prices forecast fundamentals through information encoded in the order flow, with those of the propagator model, a…
The complexity of financial markets arise from the strategic interactions among agents trading stocks, which manifest in the form of vibrant correlation patterns among stock prices. Over the past few decades, complex financial markets have…
In this paper we propose a deep recurrent architecture for the probabilistic modelling of high-frequency market prices, important for the risk management of automated trading systems. Our proposed architecture incorporates probabilistic…
In Part II of this paper, we concentrate our analysis on the price dynamical model with the moving average rules developed in Part I of this paper. By decomposing the excessive demand function, we reveal that it is the interplay between…
In a financial exchange, market impact is a measure of the price change of an asset following a transaction. This is an important element of market microstructure, which determines the behaviour of the market following a trade. In this…