Related papers: Market force, ecology and evolution
We propose a simple stochastic model of market behavior. Dividing market participants into two groups: trend-followers and fundamentalists, we derive the general form of a stochastic equation of market dynamics. The model has two…
We are living in an uncertain and dynamically changing world, where optimal decision-making under uncertainty is directly linked to the survival of species. However, evolutionary selection pressures that shape value-based decision-making…
The influence of the past price behaviour on the realized volatility is investigated in the present article. The results show that trending (drifting) prices lead to increased (decreased) realized volatility. This ``volatility induced by…
Financial price changes obey two universal properties: they follow a power law and they tend to be clustered in time. The second regularity, known as volatility clustering, entails some predictability in the price changes: while their sign…
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…
In this chapter we review some recent results on the dynamics of price formation in financial markets and its relations with the efficient market hypothesis. Specifically, we present the limit order book mechanism for markets and we…
In a financial market, for agents with long investment horizons or at times of severe market stress, it is often changes in the asset price that act as the trigger for transactions or shifts in investment position. This suggests the use of…
We present a novel microscopic stock market model consisting of a large number of random agents modeling traders in a market. Each agent is characterized by a set of parameters that serve to make iterated predictions of two successive…
We study the problem of optimal long term portfolio selection with a view to beat a benchmark. Two kinds of objectives are considered. One concerns the probability of outperforming the benchmark and seeks either to minimise the decay rate…
Functions or 'functionings' enable to give a structure to any activity and their combinations constitute the capabilities which characterize economic assets such as work utility. The basic law of supply and demand naturally emerges from…
Trend and Value are pervasive anomalies, common to all financial markets. We address the problem of their co-existence and interaction within the framework of Heterogeneous Agent Based Models (HABM). More specifically, we extend the…
In financial markets, the order flow, defined as the process assuming value one for buy market orders and minus one for sell market orders, displays a very slowly decaying autocorrelation function. Since orders impact prices, reconciling…
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…
Estimating market impact and transaction costs of large trades (metaorders) is a very important topic in finance. However, using models of price and trade based on public market data provide average price trajectories which are…
By incorporating market impact and momentum traders into an agent-based model, we investigate the conditions for the occurrence of self-reinforcing feedback loops and the coevolutionary mechanism of prices and strategies. For low market…
We discuss - in what is intended to be a pedagogical fashion - a criterion, which is a lower bound on a certain ratio, for when a stock (or a similar instrument) is not a good investment in the long term, which can happen even if the…
Historical trends suggest the decline in importance of land as a production factor but its continued importance as a store of value. Using an overlapping generations model with land and aggregate uncertainty, we theoretically study the…
We start with the idea that open quantum systems can be used to represent financial markets by modelling events from the external environment and their impact on the market price. We show how to characterize distinct orbits of the time…
In this paper we explain the wild fluctuations of financial prices from the intrinsic amplifying feedback of speculative supply and demand. Formally, we show that an asset return follows a multiplicative random growth with exogenous input,…
We develop a tractable macroeconomic model that captures dynamic behaviors across multiple timescales, including business cycles. The model is anchored in a dynamic capital demand framework reflecting an interactions-based process whereby…