Related papers: Complexity-based Financial Stress Evaluation
We address a fundamental problem that is systematically encountered when modeling complex systems: the limitedness of the information available. In the case of economic and financial networks, privacy issues severely limit the information…
Following the financial crisis of 2007-2008, a deep analogy between the origins of instability in financial systems and complex ecosystems has been pointed out: in both cases, topological features of network structures influence how easily…
Many financial and economic variables, including financial returns, exhibit nonlinear dependence, heterogeneity and heavy-tailedness. These properties may make problematic the analysis of (non-)efficiency and volatility clustering in…
We identify a robust structural signature of stock markets during exogenous shock events by analyzing collective return dynamics across G5 countries. Using Random Matrix Theory, we introduce the complexity gap, defined as the difference…
The purpose of this research article is to discover how the econophysics analysis can complement the econometrics models in application to the risk management in the central banks and financial institutions, operating within the nonlinear…
Financial markets can be seen as complex systems that are constantly evolving and sensitive to external disturbance, such as systemic risks and economic instabilities. Analysis of resilient market performance, therefore, becomes useful for…
In the last years efforts in econophysics have been shifted to study how network theory can facilitate understanding of complex financial markets. Main part of these efforts is the study of correlation-based hierarchical networks. This is…
The failure of key financial institutions may accelerate risk contagion due to their interconnections within the system. In this paper, we propose a robust portfolio strategy to mitigate systemic risks during extreme events. We use the…
Most methodologies for materials criticality assessment score supply risk and societal importance. Market-based criteria offer quantitative measures for assessment. Here we develop a statistical approach based on a geologic entropy function…
We show that financial correlations exhibit a non-trivial dynamic behavior. We introduce a simple phenomenological model of a multi-asset financial market, which takes into account the impact of portfolio investment on price dynamics. This…
We study the dynamic interactions and structural changes in global financial indices in the years 1998-2012. We apply a principal component analysis (PCA) to cross-correlation coefficients of the stock indices. We calculate the correlations…
Financial market is an example of complex system, which is characterized by a highly intricate organization and the emergence of collective behavior. In this paper, we quantify this emergent dynamics in the financial market by using…
There are two possible ways of interpreting the seemingly stochastic nature of financial markets: the Efficient Market Hypothesis (EMH) and a set of stylized facts that drive the behavior of the markets. We show evidence for some of the…
Volatility, as a primary indicator of financial risk, forms the foundation of classical frameworks such as Markowitz's Portfolio Theory and the Efficient Market Hypothesis (EMH). However, its conventional use rests on assumptions-most…
In the aftermath of the financial crisis, supervisory authorities have considerably altered the mode of operation of financial stress testing. Despite these efforts, significant concerns and extensive criticism have been raised by market…
Post Modigliani and Miller (1958), the concept of usage of arbitrage created a permanent mark on the discourses of financial framework. The arbitrage process is largely based on information dissemination amongst the stakeholders operating…
Catastrophic events, though rare, do occur and when they occur, they have devastating effects. It is, therefore, of utmost importance to understand the complexity of the underlying dynamics and signatures of catastrophic events, such as…
The price impact for a single trade is estimated by the immediate response on an event time scale, i.e., the immediate change of midpoint prices before and after a trade. We work out the price impacts across a correlated financial market.…
We compare correlations and coherent structures in nuclei and financial markets. In the nuclear physics part we review giant resonances which can be interpreted as a coherent structure embedded in chaos. With similar methods we investigate…
The latest financial crisis has painfully revealed the dangers arising from a globally interconnected financial system. Conventional approaches based on the notion of the existence of equilibrium and those which rely on statistical…