Related papers: A Classical Model of Speculative Asset Price Dynam…
We present a model of financial markets originally proposed for a turbulent flow, as a dynamic basis of its intermittent behavior. Time evolution of the price change is assumed to be described by Brownian motion in a power-law potential,…
We present an interacting-agent model of speculative activity explaining bubbles and crashes in stock markets. We describe stock markets through an infinite-range Ising model to formulate the tendency of traders getting influenced by the…
Single index financial market models cannot account for the empirically observed complex interactions between shares in a market. We describe a multi-share financial market model and compare characteristics of the volatility, that is the…
High frequency data in finance have led to a deeper understanding on probability distributions of market prices. Several facts seem to be well stablished by empirical evidence. Specifically, probability distributions have the following…
This paper introduces and formalizes the classical view on supply and demand, which, we argue, has an integrity independent and distinct from the neoclassical theory. Demand and supply, before the marginal revolution, are defined not by an…
In this study, we present a simple stochastic order-book model for investors' swarm behaviors seen in the continuous double auction mechanism, which is employed by major global exchanges. Our study shows a characteristic called "fat tail"…
Explaining empirically observed wealth and income distributions, featuring power-law tails alongside gamma or log-normal bulk shapes, challenges models that focus on either pairwise competition or individual investment mechanisms. This…
The expOU stochastic volatility model is capable of reproducing fairly well most important statistical properties of financial markets daily data. Among them, the presence of multiple time scales in the volatility autocorrelation is perhaps…
This paper addresses the statistical properties of time series driven by rational bubbles a la Blanchard and Watson (1982), corresponding to multiplicative maps, whose study has recently be revived recently in physics as a mechanism of…
We propose a frustrated and disordered many-body model of a stockmarket in which independent adaptive traders can trade a stock subject to the economic law of supply and demand. We show that the typical scaling properties and the correlated…
We study how AI agents form expectations and trade in experimental asset markets. Using a simulated open-call auction populated by autonomous Large Language Model (LLM) agents, we document three main findings. First, AI agents exhibit…
Keeping a basic tenet of economic theory, rational expectations, we model the nonlinear positive feedback between agents in the stock market as an interplay between nonlinearity and multiplicative noise. The derived hyperbolic stochastic…
Stock markets can be characterized by fat tails in the volatility distribution, clustering of volatilities and slow decay of their time correlations. For an explanation models with several mechanisms and consequently many parameters as the…
In this paper, we address one of the main puzzles in finance observed in the stock market by proponents of behavioral finance: the stock predictability puzzle. We offer a statistical model within the context of rational finance which can be…
A speculative agent with Prospect Theory preference chooses the optimal time to purchase and then to sell an indivisible risky asset to maximize the expected utility of the round-trip profit net of transaction costs. The optimization…
Crowded trades by similarly trading peers influence the dynamics of asset prices, possibly creating systemic risk. We propose a market clustering measure using granular trading data. For each stock the clustering measure captures the degree…
We contrast Arbitrage Pricing Theory (APT), the theoretical basis for the development of financial instruments, with a dynamical picture of an interacting market, in a simple setting. The proliferation of financial instruments apparently…
We develop an econometric framework integrating heavy-tailed Student's $t$ distributions with behavioral probability weighting while preserving infinite divisibility. Using 432{,}752 observations across 86 assets (2004--2024), we…
We develop a behavioral model for liquidity and volatility based on empirical regularities in trading order flow in the London Stock Exchange. This can be viewed as a very simple agent based model in which all components of the model are…
We study a market model in which the volatility of the stock may jump at a random time from a fixed value to another fixed value. This model was already described in the literature. We present a new approach to the problem, based on partial…