Related papers: Critical Market Crashes
Using the mechanics of creep in material sciences as a metaphor, we present a general framework to understand the evolution of financial, economic and social systems and to construct scenarios for the future. In a nutshell, highly…
Large variations in stock prices happen with sufficient frequency to raise doubts about existing models, which all fail to account for non-Gaussian statistics. We construct simple models of a stock market, and argue that the large…
This paper investigates the dynamics of in the S&P500 index from daily returns for the last 30 years. Using a stochastic geometry technique, each S&P500 yearly batch of data is embedded in a subspace that can be accurately described by a…
Through a novel approach, this paper shows that substantial change in stock market behavior has a statistically and economically significant impact on equity risk premium predictability both on in-sample and out-of-sample cases. In line…
A number of papers claim that a Log Periodic Power Law (LPPL) fitted to financial market bubbles that precede large market falls or 'crashes', contain parameters that are confined within certain ranges. The mechanism that has been claimed…
We consider a simple stochastic differential equation for modeling bubbles in social context. A prime example is bubbles in asset pricing, but similar mechanisms may control a range of social phenomena driven by psychological factors (for…
This essay suggests that a proper assessment of the presently unfolding financial crisis, and its cure, requires going back at least to the late 1990s, accounting for the cumulative effect of the ITC, real-estate and financial derivative…
Financial crises are known as crashes that result in a sudden loss of value of financial assets in large part and they continue to occur from time to time surprisingly. In order to discover features of the financial network, the pairwise…
Bifurcations can cause dynamical systems with slowly varying parameters to transition to far-away attractors. The terms ``critical transition'' or ``tipping point'' have been used to describe this situation. Critical transitions have been…
The value of stocks, indices and other assets, are examples of stochastic processes with unpredictable dynamics. In this paper, we discuss asymmetries in short term price movements that can not be associated with a long term positive trend.…
Financial bubbles and crashes have repeatedly caused economic turmoil notably but not only during the 2008 financial crisis. However, both in the popular press as well as scientific publications, the meaning of bubble is sometimes…
The Stock Market is a complex self-interacting system, characterized by an intermittent behaviour. Periods of high activity alternate with periods of relative calm. In the present work we investigate empirically about the possibility that…
We study optimal proportional reinsurance and investment strategies for an insurance company which experiences both ordinary and catastrophic claims and wishes to maximize the expected exponential utility of its terminal wealth. We propose…
Previous analyses of a large ensemble of stock markets have demonstrated that a log-periodic power law (LPPL) behavior of the prices constitutes a qualifying signature of speculative bubbles that often land with a crash. We detect such a…
In this paper, we develop a theory of market crashes resulting from a deleveraging shock. We consider two representative investors in a market holding different opinions about the public available information. The deleveraging shock forces…
Recently research on bubble and its burst attract much interest of researchers in various field such as economics and physics. Economists have been regarding bubble as a disorder in prices. However, this research strategy has overlooked an…
Machine Learning models in finance are highly susceptible to model drift, where predictive performance declines as data distributions shift. This issue is especially acute in developing economies such as those in Central Asia and the…
Decisions taken in our everyday lives are based on a wide variety of information so it is generally very difficult to assess what are the strategies that guide us. Stock market therefore provides a rich environment to study how people take…
We exploit a continuous time random walk description of stock prices to obtain a fast and accurate evaluation of their volatility from intraday data. We show that financial markets are usefully described as open physical systems. Indeed we…
We investigate whether fractal markets hypothesis and its focus on liquidity and invest- ment horizons give reasonable predictions about dynamics of the financial markets during the turbulences such as the Global Financial Crisis of late…