Related papers: Bubble Economics
A bubble is characterized by the presence of an underlying asset whose discounted price process is a strict local martingale under the pricing measure. In such markets, many standard results from option pricing theory do not hold, and in…
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…
Systemic risk in banking systems remains a crucial issue that it has not been completely understood. In our toy model, banks are exposed to two sources of risks, namely, market risk from their investments in assets external to the banking…
We introduce an agent-based model, in which agents set their prices to maximize profit. At steady state the market self-organizes into three groups: excess producers, consumers and balanced agents, with prices determined by their own…
We present a framework for describing the evolution of stochastic observables having a non-stationary distribution of values. The framework is applied to empirical volume-prices from assets traded at the New York stock exchange. Using…
Although classical economic theory is based on the concept of stable equilibrium, real economic systems appear to be always out of equilibrium. Indeed, they share many of the dynamical features of other complex systems, e.g., ecological…
A simple spin model is studied, motivated by the dynamics of traders in a market where expectation bubbles and crashes occur. The dynamics is governed by interactions which are frustrated across different scales: While ferromagnetic…
The rapid rise of cryptocurrency prices led to concerns (e.g. the Financial Stability Board) that this wealth accumulation could detrimentally spill over into other parts of the economy, but evidence is limited. We exploit the tendency for…
A linear bubble model of grain growth is introduced to study the conditions under which an isolated grain can grow to a size much larger than the surrounding matrix average (abnormal growth). We first consider the case of bubbles of two…
In the present paper a model of a market consisting of real and financial interacting sectors is studied. Agents populating the stock market are assumed to be not able to observe the true underlying fundamental, and their beliefs are biased…
We study a dynamical model of interconnected firms which allows for certain market imperfections and frictions, restricted here to be myopic price forecasts and slow adjustment of production. Whereas the standard rational equilibrium is…
It is still common wisdom amongst economists, politicians and lay people that economic growth is a necessity of our social systems, at least to avoid distributional conflicts. This paper challenges such belief moving from a purely physical…
Recent research in economic theory attempts to study optimal economic growth and spatial location of economic activity in a unified framework. So far, the key result of this literature - asymptotic convergence, even in the absence of…
Why are human societies unstable? Theories based on the observation of recurring patterns in historical data indicate that economic inequality, as well as social factors are key drivers. So far, models of this phenomenon are more…
We analyze the relative price change of assets starting from basic supply/demand considerations subject to arbitrary motivations. The resulting stochastic differential equation has coefficients that are functions of supply and demand. We…
Using Trades and Quotes data from the Paris stock market, we show that the random walk nature of traded prices results from a very delicate interplay between two opposite tendencies: long-range correlated market orders that lead to…
In speculative markets, risk-free profit opportunities are eliminated by traders exploiting them. Markets are therefore often described as "informationally efficient", rapidly removing predictable price changes, and leaving only residual…
Quantum theory is used to model secondary financial markets. Contrary to stochastic descriptions, the formalism emphasizes the importance of trading in determining the value of a security. All possible realizations of investors holding…
We develop a version of the fundamental theorem of asset pricing for discrete-time markets with proportional transaction costs and model uncertainty. A robust notion of no-arbitrage of the second kind is defined and shown to be equivalent…
Small bubbles rising in a chain can self-organize into regular patterns upon reaching a liquid's free surface. This phenomenon is investigated through direct numerical simulations. By varying the bubble release period, distinct branching…