Related papers: The Instability of Markets
The stability analysis of socioeconomic systems has been centered on answering whether small perturbations when a system is in a given quantitative state will push the system permanently to a different quantitative state. However, typically…
In an incomplete continuous-time securities market with uncertainty generated by Brownian motions, we derive closed-form solutions for the equilibrium interest rate and market price of risk processes. The economy has a finite number of…
The complexity of financial markets arise from the strategic interactions among agents trading stocks, which manifest in the form of vibrant correlation patterns among stock prices. Over the past few decades, complex financial markets have…
A financial market comprising of a certain number of distinct companies is considered, and the following statement is proved: either a specific agent will surely beat the whole market unconditionally in the long run, or (and this "or" is…
This paper presents a new interacting particle system and uses it as a spin model for financial market microstructure. The asymptotic analysis of this stochastic process exhibits a lower bound to the contemporaneous measurement of price and…
This study investigates the functioning of modern payment systems through the lens of banks' maturity mismatch practices, and it examines the effects of banks' refusal to roll over short-term interbank liabilities on financial stability.…
We analyze the stability properties of equilibrium solutions and periodicity of orbits in a two-dimensional dynamical system whose orbits mimic the evolution of the price of an asset and the excess demand for that asset. The construction of…
Standard economic theory assumes that agents in markets behave rationally. However, the observation of extremely large fluctuations in the price of financial assets that are not correlated to changes in their fundamental value, as well as…
We present a limits-to-arbitrage model to study the impact of securitization, leverage and credit risk protection on the cyclicity of bank credit. In a stable bank credit situation, no cycles of credit expansion or contraction appear.…
The sustainability conditions for the market participants with a different ownership model were also determined. It was revealed, that the nonlinear form of the equations describing the market behavior with the prevailing private capital,…
Equilibrium fluid configurations for close binary systems can become {\em globally unstable\/}. Instabilities arise from the strong tidal interaction between the two components, which tends to make the effective two-body potential governing…
The question of how to stabilize financial systems has attracted considerable attention since the global financial crisis of 2007-2009. Recently, Beale et al. ("Individual versus systemic risk and the regulator's dilemma", Proc Natl Acad…
In this article we model chaotic dynamics in financial markets by treating the market price, and market makers' inventory, as anharmonic oscillators with a nonlinear coupling. The market makers' risk appetite being the key parameter that…
No matter its source, financial- or policy-related, uncertainty can feed onto itself, inflicting the real economic sector, altering expectations and behaviours, and leading to identification challenges in empirical applications. The strong…
In a previous paper, we applied a field formalism to analyze capital allocation and accumulation within a microeconomic framework of investors and firms. The financial connections were modeled by a field of stakes, representing the links…
In FX cash markets, market makers provide liquidity to clients for a wide variety of currency pairs. Because of flow uncertainty and market volatility, they face inventory risk. To mitigate this risk, they typically skew their prices to…
Coalition forming is investigated among countries, which are coupled with short range interactions, under the influence of external fields produced by the existence of global alliances. The model rests on the natural model of coalition…
In this review article we explore several recent advances in the quantitative modeling of financial markets. We begin with the Efficient Markets Hypothesis and describe how this controversial idea has stimulated a number of new directions…
We seek to deepen understanding of the micro-foundations of institutionalization while contributing to a sociological theory of markets by investigating the puzzle of price bubbles in financial markets. We find that such markets, despite…
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…