Related papers: A Nonlinear Super-Exponential Rational Model of Sp…
We propose two rational expectation models of transient financial bubbles with heterogeneous arbitrageurs and positive feedbacks leading to self-reinforcing transient stochastic faster-than-exponential price dynamics. As a result of the…
Using a recently introduced rational expectation model of bubbles, based on the interplay between stochasticity and positive feedbacks of prices on returns and volatility, we develop a new methodology to test how this model classifies 9…
We study a rational expectation model of bubbles and crashes. The model has two components : (1) our key assumption is that a crash may be caused by local self-reinforcing imitation between noise traders. If the tendency for noise traders…
We introduce a model of super-exponential financial bubbles with two assets (risky and risk-free), in which rational investors and noise traders co-exist. Rational investors form expectations on the return and risk of a risky asset and…
We present an interacting-agent model of speculative activity explaining bubbles and crashes in stock markets. We describe stock markets through an infinite-range Ising model to formulate the tendency of traders getting influenced by the…
This paper proposes a theory of stock market predictability patterns based on a model of heterogeneous beliefs. In a discrete finite time framework, some agents receive news about an asset's fundamental value through a noisy signal. The…
Imitative and contrarian behaviors are the two typical opposite attitudes of investors in stock markets. We introduce a simple model to investigate their interplay in a stock market where agents can take only two states, bullish or bearish.…
We present a self-consistent model for explosive financial bubbles, which combines a mean-reverting volatility process and a stochastic conditional return which reflects nonlinear positive feedbacks and continuous updates of the investors'…
Episodes of market crashes have fascinated economists for centuries. Although many academics, practitioners and policy makers have studied questions related to collapsing asset price bubbles, there is little consensus yet about their causes…
We introduce the concept of "negative bubbles" as the mirror image of standard financial bubbles, in which positive feedback mechanisms may lead to transient accelerating price falls. To model these negative bubbles, we adapt the…
We present a simple agent-based model to study the development of a bubble and the consequential crash and investigate how their proximate triggering factor might relate to their fundamental mechanism, and vice versa. Our agents invest…
Economic and financial time series can feature locally explosive behavior when a bubble is formed. The economic or financial bubble, especially its dynamics, is an intriguing topic that has been attracting longstanding attention. To…
This paper proposes a simple and parsimonious discrete-time simulation model to describe the endogenous formation and periodic collapse of financial bubbles. While existing literature has extensively explored the statistical properties of…
By combining (i) the economic theory of rational expectation bubbles, (ii) behavioral finance on imitation and herding of investors and traders and (iii) the mathematical and statistical physics of bifurcations and phase transitions, the…
By combining (i) the economic theory of rational expectation bubbles, (ii) behavioral finance on imitation and herding of investors and traders and (iii) the mathematical and statistical physics of bifurcations and phase transitions, the…
Establishing unambiguously the existence of speculative bubbles is an on-going controversy complicated by the need of defining a model of fundamental prices. Here, we present a novel empirical method which bypasses all the difficulties of…
We construct a statistical indicator for the detection of short-term asset price bubbles based on the information content of bid and ask market quotes for plain vanilla put and call options. Our construction makes use of the martingale…
Noncausal, or anticipative, heavy-tailed processes generate trajectories featuring locally explosive episodes akin to speculative bubbles in financial time series data. For $(X_t)$ a two-sided infinite $\alpha$-stable moving average (MA),…
We investigate large changes, bursts, of the continuous stochastic signals, when the exponent of multiplicativity is higher than one. Earlier we have proposed a general nonlinear stochastic model which can be transformed into Bessel process…
We propose a non linear Langevin equation as a model for stock market fluctuations and crashes. This equation is based on an identification of the different processes influencing the demand and supply, and their mathematical transcription.…