Related papers: Information-minimizing stationary financial market…
The Black-Scholes-Merton model is a mathematical model for the dynamics of a financial market that includes derivative investment instruments, and its formula provides a theoretical price estimate of European-style options. The model's…
In this paper we present an interacting-agent model of stock markets. We describe a stock market through an Ising-like model in order to formulate the tendency of traders getting to be influenced by the other traders' investment attitudes…
The growth of machine-readable data in finance, such as alternative data, requires new modeling techniques that can handle non-stationary and non-parametric data. Due to the underlying causal dependence and the size and complexity of the…
A new approach to obtaining market--directional information, based on a non-stationary solution to the dynamic equation "future price tends to the value that maximizes the number of shares traded per unit time" [1] is presented. In our…
We study the numerical solution of nonlinear partially observed optimal stopping problems. The system state is taken to be a multi-dimensional diffusion and drives the drift of the observation process, which is another multi-dimensional…
A simple Ising spin model which can describe the mechanism of price formation in financial markets is proposed. In contrast to other agent-based models, the influence does not flow inward from the surrounding neighbors to the center site,…
We propose a minimal multi-agent model for the collective dynamics of opinion formation in the society, by modifying kinetic exchange dynamics studied in the context of income, money or wealth distributions in a society. This model has an…
The financial market is a complex dynamical system composed of a large variety of intricate relationships between several entities, such as banks, corporations and institutions. At the heart of the system lies the stock exchange mechanism,…
Recently, to account for low-frequency market dynamics, several volatility models, employing high-frequency financial data, have been developed. However, in financial markets, we often observe that financial volatility processes depend on…
When prices reflect all available information, they oscillate around an equilibrium level. This oscillation is the result of the temporary market impact caused by waves of buyers and sellers. This price behavior can be approximated through…
We study a simple model of an asset market with informed and non-informed agents. In the absence of non-informed agents, the market becomes information efficient when the number of traders with different private information is large enough.…
This paper presents a heuristic framework for analyzing the Goldbach Conjecture (GC) from the perspective of the physics of information. Through empirical analysis, we propose an Informational Economy Principle (IEP), which posits that…
In this paper we introduce a simple model for a financial market characterized by a single stock or good and an interplay between two different traders populations, chartists and fundamentalists, which determine the price dynamic of the…
Classical portfolio optimization methods typically determine an optimal capital allocation through the implicit, yet critical, assumption of statistical time-invariance. Such models are inadequate for real-world markets as they employ…
We describe how to analyze the wide class of non stationary processes with stationary centered increments using Shannon information theory. To do so, we use a practical viewpoint and define ersatz quantities from time-averaged probability…
Understanding a complex system entails capturing the non-trivial collective phenomena that arise from interactions between its different parts. Information theory is a flexible and robust framework to study such behaviours, with several…
We study markets with no riskless (safe) asset. We derive the corresponding Black-Scholes-Merton option pricing equations for markets where there are only risky assets which have the following price dynamics: (i) continuous diffusions; (ii)…
Decisions taken in our everyday lives are based on a wide variety of information so it is generally very difficult to assess what are the strategies that guide us. Stock market therefore provides a rich environment to study how people take…
The minority game (MG) model introduced recently provides promising insights into the understanding of the evolution of prices, indices and rates in the financial markets. In this paper we perform a time series analysis of the model…
In a paper published in The Economic Journal in 2000, Weisbuch et al.\ introduce a model for buyers' preferences to the various sellers in over-the-counter (OTC) fish markets. While this model has become an archetype of economic…