Related papers: Bubbles and Market Crashes
We develop a stochastic macro-financial model in continuous time by integrating two specifications of the Keen economic framework with a financial market driven by a jump-diffusion process. The economic block of the model combines monetary…
In physics the value of a theory is measured by its agreement with experimental data. But how should the physics community gauge the value of an emerging theory that has not been tested experimentally as of yet? With no reality check, a…
This paper is the third in a series investigating the possibility that if we reside in an inflationary "bubble universe", we might observe the effects of collisions with other such bubbles. Here, we study the interior structure of a bubble…
A dynamical price formation model for financial assets is presented. It aims to capture the essence of speculative trading where mispricings of assets are used to make profits. It is shown that together with the incorporation of the concept…
Firm foundation theory estimates a security's firm fundamental value based on four determinants: expected growth rate, expected dividend payout, the market interest rate and the degree of risk. In contrast, other views of decision-making in…
This work presents an asset pricing model that under rational expectation equilibrium perspective shows how, depending on risk aversion and noise volatility, a risky-asset has one equilibrium price that differs in term of efficiency: an…
The occurrence of aftershocks following a major financial crash manifests the critical dynamical response of financial markets. Aftershocks put additional stress on markets, with conceivable dramatic consequences. Such a phenomenon has been…
Mandatory emission trading schemes are being established around the world. Participants of such market schemes are always exposed to risks. This leads to the creation of an accompanying market for emission-linked derivatives. To evaluate…
In this paper we study the price dynamics in a simple model of financial markets with heterogeneous agents. We concentrate on how increases in the total number of active traders influences fluctuations of asset prices. We find that a…
Identifying unambiguously the presence of a bubble in an asset price remains an unsolved problem in standard econometric and financial economic approaches. A large part of the problem is that the fundamental value of an asset is, in…
A model of open economics composed of producers and speculators is investigated by numerical simulations. The capital flows from the environment to the producers and from them to the speculators. The price fluctuations are suppressed by the…
We develop a theoretical trading conditioning model subject to price volatility and return information in terms of market psychological behavior, based on analytical transaction volume-price probability wave distributions in which we use…
This paper proves an instability theorem for dynamical systems. As one adds interactions between subystems in a complex system, structured or random, a threshold of connectivity is reached beyond which the overall dynamics inevitably goes…
We use standard physics techniques to model trading and price formation in a market under the assumption that order arrival and cancellations are Poisson random processes. This model makes testable predictions for the most basic properties…
Renowned method of log-periodic power law(LPPL) is one of the few ways that a financial market crash could be predicted. Alongside with LPPL, this paper propose a novel method of stock market crash using white box model derived from simple…
During a stock market peak the price of a given stock ($ i $) jumps from an initial level $ p_1(i) $ to a peak level $ p_2(i) $ before falling back to a bottom level $ p_3(i) $. The ratios $ A(i) = p_2(i)/p_1(i) $ and $ B(i)= p_3(i)/p_1(i)…
To identify emerging interdependencies between traded stocks we investigate the behavior of the stocks of FTSE 100 companies in the period 2000-2015, by looking at daily stock values. Exploiting the power of information theoretical measures…
Collective behaviours taking place in financial markets reveal strongly correlated states especially during a crisis period. A natural hypothesis is that trend reversals are also driven by mutual influences between the different stock…
There is a clear distinction between simple laminar and complex turbulent fluids. But in some cases, as for the nocturnal planetary boundary layer, a stable and well-ordered flow can develop intense and sporadic bursts of turbulent activity…
A deterministic trading strategy by a representative investor on a single market asset, which generates complex and realistic returns with its first four moments similar to the empirical values of European stock indices, is used to simulate…