Related papers: Critical Market Crashes
We set up a structural model to study credit risk for a portfolio containing several or many credit contracts. The model is based on a jump--diffusion process for the risk factors, i.e. for the company assets. We also include correlations…
Banking system crises are complex events that in a short span of time can inflict extensive damage to banks themselves and to the external economy. The crisis literature has so far identified a number of distinct effects or channels that…
The stock market's reaction to the external risk shock is closely related to the cross-shareholding network structure. This paper takes the public information of listed companies in the A-share securities market as the primary sample to…
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…
A general theory of innovation and progress in human society is outlined, based on the combat between two opposite forces (conservatism/inertia and speculative herding "bubble" behavior). We contend that human affairs are characterized by…
We develop a new stock market index that captures the chaos existing in the market by measuring the mutual changes of asset prices. This new index relies on a tensor-based embedding of the stock market information, which in turn frees it…
Earthquakes occur because of abrupt slips on faults due to accumulated stress in the Earth's crust. Because most of these faults and their mechanisms are not readily apparent, deterministic earthquake prediction is difficult. For effective…
Physical concepts developed to describe instabilities in traffic flows can be generalized in a way that allows one to understand the well-known instability of supply chains (the so-called ``bullwhip effect''). That is, small variations in…
The thesis is composed of three parts. Part I introduces the mathematical and statistical tools that are relevant for the study of dependences, as well as statistical tests of Goodness-of-fit for empirical probability distributions. I…
As we show by using notions of equilibrium in infinite sequential games, crashes or financial escalations are rational for economic or environmental agents, who have a vision of an infinite world. This contradicts a picture of a…
The basis of arbitrage methods depends on the circulation of information within the framework of the financial market. Following the work of Modigliani and Miller, it has become a vital part of discussions related to the study of financial…
We propose a novel explanation for classic international macro puzzles regarding capital flows and portfolio investment, which builds on modern macro-finance models of experience-based belief formation. Individual experiences of past…
Why are human societies unstable? Theories based on the observation of recurring patterns in historical data indicate that economic inequality, as well as social factors are key drivers. So far, models of this phenomenon are more…
We define and study a rather complex market model, inspired from the Santa Fe artificial market and the Minority Game. Agents have different strategies among which they can choose, according to their relative profitability, with the…
We discuss the statistical properties of index returns in a financial market just after a major market crash. The observed non-stationary behavior of index returns is characterized in terms of the exceedances over a given threshold. This…
A model of an evolving network of interacting molecular species is shown to exhibit repeated rounds of crashes in which several species get rapidly depopulated, followed by recoveries. The network inevitably self-organizes into an…
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…
To identify emerging interdependencies between traded stocks we investigate the behavior of the stocks of FTSE 100 companies in the period 2000-2015, by looking at daily stock values. Exploiting the power of information theoretical measures…
The recent crash demonstrated (once again) that the description of the financial market by present financial mathematics cannot be considered as totally satisfactory. We remind that nowadays financial mathematics is heavily based on the use…
This paper discusses a novel explanation for asymmetric volatility based on the anchoring behavioral pattern. Anchoring as a heuristic bias causes investors focusing on recent price changes and price levels, which two lead to a belief in…