Related papers: On a universal mechanism for long ranged volatilit…
Behavioral finance has become an increasingly important subfield of finance. However the main parts of behavioral finance, prospect theory included, understand financial markets through individual investment behavior. Behavioral finance…
In informationally efficient financial markets, option prices and this implied volatility should immediately be adjusted to new information that arrives along with a jump in underlying's return, whereas gradual changes in implied volatility…
In this paper, we study which data can be induced by a correlated equilibrium given a known finite simultaneous move game. We assume that an analyst has access to the frequency of each agent's actions but does not have access to the…
This paper presents a dynamic game framework to analyze the role of large banks in interbank markets. By extending existing models, we incorporate a large bank as a dynamic decision-maker interacting with multiple small banks. Using the…
We address the question of market efficiency using the Minority Game (MG) model. First we show that removing unrealistic features of the MG leads to models which reproduce a scaling behavior close to what is observed in real markets. In…
Planned experiments are the gold standard in reliably comparing the causal effect of switching from a baseline policy to a new policy. One critical shortcoming of classical experimental methods, however, is that they typically do not take…
Economic ensembles can be modeled as networks of interacting agents whose be-haviors are described in terms of game theory. The evolutionary paradigm has been applied to two-person games to discover strategies in this context.…
We analyze complexity of financial (and general economic) processes by comparing classical and quantum-like models for randomness. Our analysis implies that it might be that a quantum-like probabilistic description is more natural for…
Agent-based modeling is a powerful simulation technique to understand the collective behavior and microscopic interaction in complex financial systems. Recently, the concept for determining the key parameters of the agent-based models from…
In the present paper a model of a market consisting of real and financial interacting sectors is studied. Agents populating the stock market are assumed to be not able to observe the true underlying fundamental, and their beliefs are biased…
Adaptive populations such as those in financial markets and distributed control can be modeled by the Minority Game. We consider how their dynamics depends on the agents' initial preferences of strategies, when the agents use linear or…
We study a class of heterogeneous agent-based models which are based on a basic set of principles, and the most fundamental operations of an economic system: trade and product transformations. A basic guiding principle is scale invariance,…
The discrepancy between realized volatility and the market's view of volatility has been known to predict individual equity options at the monthly horizon. It is not clear how this predictability depends on a forecast's ability to predict…
We present analytic and numerical results for two models, namely the minority model and the bar-attendance model, which offer simple paradigms for a competitive marketplace. Both models feature heterogeneous agents with bounded rationality…
We consider a continuous-time game-theoretic model of an investment market with short-lived assets and endogenous asset prices. The first goal of the paper is to formulate a stochastic equation which determines wealth processes of investors…
Ecologists and economists try to explain collective behavior in terms of competitive systems of selfish individuals with the ability to learn from the past. Statistical physicists have been investigating models which might contribute to the…
Strategy evaluation schemes are a crucial factor in any agent-based market model, as they determine the agents' strategy preferences and consequently their behavioral pattern. This study investigates how the strategy evaluation schemes…
The dynamics of minority games with agents trading on different time scales is studied via dynamical mean-field theory. We analyze the case where the agents' decision-making process is deterministic and its stochastic generalization with…
We consider a mean-reverting stochastic volatility model which satisfies some relevant stylized facts of financial markets. We introduce an algorithm for the detection of peaks in the volatility profile, that we apply to the time series of…
Volatility is the canonical measure of financial risk, a role largely inherited from Modern Portfolio Theory. Yet, its universality rests on restrictive efficiency assumptions that render volatility, at best, an incomplete proxy for true…