Related papers: Risk aversion in financial decisions: A nonextensi…
We review a simple model of closed economy, where the economic agents make money transactions and a saving criterion is present. We observe the Gibbs distribution for zero saving propensity, and non-Gibbs distributions otherwise. While the…
A calculational approach in fluid turbulence is presented. Use is made of the attracting nature of the fluid-dynamic dynamical system. An approximate approach is offerred that effectively propagates the statistics in time. Loss of…
In this paper we present a rather general phenomenological theory of tick-by-tick dynamics in financial markets. Many well-known aspects, such as the L\'evy scaling form, follow as particular cases of the theory. The theory fully takes into…
This paper attempts to find a relationship between agents' risk aversion and inequality of incomes. Specifically, a model is proposed for the evolution in time of surplus/deficit distribution, and the long-time distributions are…
In this article we model chaotic dynamics in financial markets by treating the market price, and market makers' inventory, as anharmonic oscillators with a nonlinear coupling. The market makers' risk appetite being the key parameter that…
Foreign exchange and credit derivatives increase the bank's contributions to systemic risk. Interest rate derivatives decrease it. The proportion of non-performing loans over total loans and the leverage ratio have stronger impact on…
In this paper, we consider the asset-liability management under the mean-variance criterion. The financial market consists of a risk-free bond and a stock whose price process is modeled by a geometric Brownian motion. The liability of the…
Autonomous systems can substantially enhance a human's efficiency and effectiveness in complex environments. Machines, however, are often unable to observe the preferences of the humans that they serve. Despite the fact that the human's and…
The domain of validity of standard thermodynamics and Boltzmann-Gibbs statistical mechanics is discussed and then formally enlarged in order to hopefully cover a variety of anomalous systems. The generalization concerns {\it nonextensive}…
Statistical mechanics can only be ultimately justified in terms of microscopic dynamics (classical, quantum, relativistic, or any other). It is known that Boltzmann-Gibbs statistics is based on the hypothesis of exponential sensitivity to…
We generalize the momentum indicator idea taking into account the volume of transactions as a multiplicative factor. We compare returns obtained following strategies based on the classical or the generalized technical analysis, taking into…
Automation significantly alters human behavior, particularly risk-taking. Previous researches have paid limited attention to the underlying characteristics of automation and their mechanisms of influence on risk-taking. This study…
The instability of the financial system as experienced in recent years and in previous periods is often linked to credit defaults, i.e., to the failure of obligors to make promised payments. Given the large number of credit contracts, this…
Economists often estimate economic models on data and use the point estimates as a stand-in for the truth when studying the model's implications for optimal decision-making. This practice ignores model ambiguity, exposes the decision…
A range of empirical puzzles in finance has been explained as a consequence of traders being averse to ambiguity. Ambiguity averse traders can behave in financial portfolio problems in ways that cannot be rationalized as maximizing…
This paper introduces forward-looking measures of the network connectedness of fears in the financial system, arising due to the good and bad beliefs of market participants about uncertainty that spreads unequally across a network of banks.…
We assume that an individual invests in a financial market with one riskless and one risky asset, with the latter's price following a diffusion with stochastic volatility. In the current financial market especially, it is important to…
This paper presents a method for incorporating risk aversion into existing decision tree models used in economic evaluations. The method involves applying a probability weighting function based on rank dependent utility theory to reduced…
A minimal stochastic dynamical model of the interbank network is introduced, with linear interactions mediated by an integral of recent variations. Defining stress as the variance over the banks' states, the interaction correction to 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…