Related papers: Suffocating Fire Sales
One of the most defining features of the global financial network is its inherent complex and intertwined structure. From the perspective of systemic risk it is important to understand the influence of this network structure on default…
By treating the financial market as a thermodynamic system, we establish a one-to-one correspondence between thermodynamic variables and economic quantities. Measured by the expected loss under the worst-case scenario, financial risk caused…
A financial system contains many elements networked by their relationships. Extensive works show that topological structure of the network stores rich information on evolutionary behaviors of the system such as early warning signals of…
We consider a network of bank holdings, where every holding has two subsidiaries of different types. A subsidiary can trade with another holding's subsidiary of the same type. Holdings support their subsidiaries up to a certain level when…
Financial and economic history is strewn with bubbles and crashes, booms and busts, crises and upheavals of all sorts. Understanding the origin of these events is arguably one of the most important problems in economic theory. In this…
The current paper is a corrected version of our previous paper arXiv:adap-org/9608001. Similarly to previous version we investigate the problem of flame propagation. This problem is studied as an example of unstable fronts that wrinkle on…
Oft-cited causes of mini-flash crashes include human errors, endogenous feedback loops, the nature of modern liquidity provision, fundamental value shocks, and market fragmentation. We develop a mathematical model which captures aspects of…
In a network, a local disturbance can propagate and eventually cause a substantial part of the system to fail, in cascade events that are easy to conceptualize but extraordinarily difficult to predict. Here, we develop a statistical…
We study the ex-ante minimization of market inefficiency, defined in terms of minimum deviation of market prices from fundamental values, from a centralized planner's perspective. Prices are pressured from exogenous trading actions of…
The European sovereign debt crisis has impaired many European banks. The distress on the European banks may transmit worldwide, and result in a large-scale knock-on default of financial institutions. This study presents a computer…
The analysis of financial markets using models inspired by statistical physics offers a fruitful approach to understand collective and extreme phenomena [3, 14, 15] In this paper, we present a study based on a 2D Ising network model where…
Tracking the build-up of financial vulnerabilities is a key component of financial stability policy. Due to the complexity of the financial system, this task is daunting, and there have been several proposals on how to manage this goal. One…
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…
We present a model describing the competition between information transmission and decision making in financial markets. The solution of this simple model is recalled, and possible variations discussed. It is shown numerically that despite…
We review the properties of the self-organized critical (SOC) forest-fire model. The paradigm of self-organized criticality refers to the tendency of certain large dissipative systems to drive themselves into a critical state independent of…
We present a novel methodology to quantify the "impact" of and "response" to market shocks. We apply shocks to a group of stocks in a part of the market, and we quantify the effects in terms of average losses on another part of the market…
Common asset holding by financial institutions, namely portfolio overlap, is nowadays regarded as an important channel for financial contagion with the potential to trigger fire sales and thus severe losses at the systemic level. In this…
The vast majority of market impact studies assess each product individually, and the interactions between the different order flows are disregarded. This strong approximation may lead to an underestimation of trading costs and possible…
We introduce a general framework for models of cascade and contagion processes on networks, to identify their commonalities and differences. In particular, models of social and financial cascades, as well as the fiber bundle model, the…
We propose a highly efficient and accurate methodology for generating synthetic financial market data using a diffusion model approach. The synthetic data produced by our methodology align closely with observed market data in several key…