Related papers: The Instability of Markets
I study the limit of a large random economy, where a set of consumers invests in financial instruments engineered by banks, in order to optimize their future consumption. This exercise shows that, even in the ideal case of perfect…
We study the emergence of instabilities in a stylized model of a financial market, when different market actors calculate prices according to different (local) market measures. We derive typical properties for ensembles of large random…
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…
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…
Most finance studies are discussed on the basis of several hypotheses, for example, investors rationally optimize their investment strategies. However, the hypotheses themselves are sometimes criticized. Market impacts, where trades of…
The recent financial crisis have generated renewed interests in fragilities of global financial networks among economists and regulatory authorities. In particular, a potential vulnerability of the financial networks is the "financial…
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…
This paper studies the dynamic market linkages among cryptocurrencies during August 2015 - July 2020 and finds a substantial increase in market linkages for both returns and volatilities. We use different methodologies to check the…
The so called "globalization" process (i.e. the inexorable integration of markets, currencies, nation-states, technologies and the intensification of consciousness of the world as a whole) has a behavior exactly equivalent to a system that…
Following the financial crisis of 2007-2008, a deep analogy between the origins of instability in financial systems and complex ecosystems has been pointed out: in both cases, topological features of network structures influence how easily…
Stability of the utility maximization problem with random endowment and indifference prices is studied for a sequence of financial markets in an incomplete Brownian setting. Our novelty lies in the nonequivalence of markets, in which the…
One 'problem' with the 21st century world, particularly the economic and business worlds, is the phenomenal and increasing number of interconnections between economic agents (consumers, firms, banks, markets, national economies). This…
This paper aims at solving FX market volatility modeling problem and finding the most becoming approach to this task. Validity of two competing approaches, classical econometric generalized conditional heteroscedasticity and mathematical…
We analyze the stability of financial investment networks, where financial institutions hold overlapping portfolios of assets. We consider the effect of portfolio diversification and heterogeneous investments using a random matrix dynamical…
The global financial system is highly complex, with cross-border interconnections and interdependencies. In this highly interconnected environment, local financial shocks and events can be easily amplified and turned into global events.…
We discuss price variations distributions in foreign exchange markets, characterizing them both in calendar and business time frameworks. The price dynamics is found to be the result of two distinct processes, a multi-variance diffusion and…
The paper discusses various practical consequences of treating economics and finance as an inherently dynamic and chaotic system. On the theoretical side this looks at the general applicability of the market-making pricing approach to…
The integration and innovation of finance and technology have gradually transformed the financial system into a complex one. Analyses of the causesd of abnormal fluctuations in the financial market to extract early warning indicators…
In the current environment of financial distress, many governments are likely to soon become major holders of financial assets, but the policy debate focuses only on the likelihood and extent of short-term market stabilization. This paper…
During a financial crisis, the capital markets network frequently exhibits a high correlation between returns. We developed a network analysis framework based on daily returns from 42 countries to determine systemic stability. Our network…