Related papers: When David becomes Goliath: Repo dealer-driven bon…
The digitalization of financial markets has shifted trading from voice to electronic channels, with Multi-Dealer-to-Client (MD2C) platforms now enabling clients to request quotes (RfQs) for financial instruments like bonds from multiple…
How does supply uncertainty affect the structure of supply chain networks? To answer this question we consider a setting where retailers and suppliers must establish a costly relationship with each other prior to engaging in trade.…
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…
Changes in collateralization have been implicated in significant default (or near-default) events during the financial crisis, most notably with AIG. We have developed a framework for quantifying this effect based on moving between…
This paper presents a new model for pricing financial derivatives subject to collateralization. It allows for collateral arrangements adhering to bankruptcy laws. As such, the model can back out the market price of a collateralized…
We review the evidence that the erratic dynamics of markets is to a large extent of endogenous origin, i.e. determined by the trading activity itself and not due to the rational processing of exogenous news. In order to understand why and…
This paper studies the transmission of productivity shocks in general equilibrium production networks, when firms in different sectors operate under informational rigidity and rely on external debt. Rigidity breaks the Modigliani-Miller…
We build an agent-based model to study how the interplay between low- and high-frequency trading affects asset price dynamics. Our main goal is to investigate whether high-frequency trading exacerbates market volatility and generates flash…
We investigate the full dynamics of capital allocation and wealth distribution of heterogeneous agents in a frictional economy during booms and busts using tools from mean-field games. Two groups in our models, namely the expert and the…
Trading frictions are stochastic. They are, moreover, in many instances fast-mean reverting. Here, we study how to optimally trade in a market with stochastic price impact and study approximations to the resulting optimal control problem…
A microeconomic approach is proposed to derive the fluctuations of risky asset price, where the market participants are modeled as prospect trading agents. As asset price is generated by the temporary equilibrium between demand and supply,…
The paper proposes a framework for modeling and analysis of the dynamics of supply, demand, and clearing prices in power system with real-time retail pricing and information asymmetry. Real-time retail pricing is characterized by passing on…
We present cross and time series analysis of price fluctuations in the U.S. Treasury fixed income market. By means of techniques borrowed from statistical physics we show that the correlation among bonds depends strongly on the maturity and…
We show how bad and good volatility propagate through forex markets, i.e., we provide evidence for asymmetric volatility connectedness on forex markets. Using high-frequency, intra-day data of the most actively traded currencies over 2007 -…
We report empirical evidences on the existence of a conditional dynamics driving the evolution of financial assets which is found in several markets around the world and for different historical periods. In particular, we have analyzed the…
Using a semi-structural approach, the paper identifies how heterogeneity and financial frictions affect the transmission of aggregate shocks. Approximating a heterogeneous agent model around the representative agent allocation can…
We demonstrate that minority mechanisms arise in the dynamics of markets because of effects of price impact; accordingly the relative importance of minority and delayed majority mechanisms depends on the frequency of trading. We then use…
We investigate quantitatively the so-called leverage effect, which corresponds to a negative correlation between past returns and future volatility. For individual stocks, this correlation is moderate and decays exponentially over 50 days,…
This paper quantifies the effects of equity tail risk on the US government bond market. We estimate equity tail risk with option-implied stock market volatility that stems from large negative price jumps, and we assess its value in…
In the over-the-counter market in derivatives, we sometimes see large numbers of traders taking the same position and risk. When there is this kind of concentration in the market, the position impacts the pricings of all other derivatives…