Related papers: Conditional dynamics driving financial markets
We introduce a discrete binary tree for pricing contingent claims with the underlying security prices exhibiting history dependence characteristic of that induced by market microstructure phenomena. Example dependencies considered include…
The aim of this work is to investigate the qualitative behaviour of a financial dynamical system which contains a time delay. We investigate the dynamic response of this system of which variables are interest rate, investment demand, price…
The paper discusses various practical consequences of treating economics and finance as an inherently dynamic and chaotic system. On the theoretical side this looks at the general applicability of the market-making pricing approach to…
By monitoring the time evolution of the most liquid Futures contracts traded globally as acquired using the Bloomberg API from 03 January 2000 until 15 December 2014 we were able to forecast the S&P 500 index beating the Buy and Hold…
The global financial crisis in 2007-2009 demonstrated that systemic risk can spread all over the world through a complex web of financial linkages, yet we still lack fundamental knowledge about the evolution of the financial web. In…
We report on a series of experiments in which we study the coevolutionary "arms-race" dynamics among groups of agents that engage in adaptive automated trading in an accurate model of contemporary financial markets. At any one time, every…
Many studies assume stock prices follow a random process known as geometric Brownian motion. Although approximately correct, this model fails to explain the frequent occurrence of extreme price movements, such as stock market crashes. Using…
The environment in which a population evolves can have a crucial impact on selection. We study evolutionary dynamics in finite populations of fixed size in a changing environment. The population dynamics are driven by birth and death…
Temporal data distribution shift is prevalent in the financial text. How can a financial sentiment analysis system be trained in a volatile market environment that can accurately infer sentiment and be robust to temporal data distribution…
We investigate the daily correlation present among market indices of stock exchanges located all over the world in the time period Jan 1996 - Jul 2009. We discover that the correlation among market indices presents both a fast and a slow…
We consider the pricing of derivatives in a setting with trading restrictions, but without any probabilistic assumptions on the underlying model, in discrete and continuous time. In particular, we assume that European put or call options…
A central problem of Quantitative Finance is that of formulating a probabilistic model of the time evolution of asset prices allowing reliable predictions on their future volatility. As in several natural phenomena, the predictions of such…
We propose a dynamical model for group formation and switching behavior in systems where each group competes for members through attraction functions that are inversely proportional to their current sizes. This attraction is modulated by…
This paper proposes a novel model of financial prices where: (i) prices are discrete; (ii) prices change in continuous time; (iii) a high proportion of price changes are reversed in a fraction of a second. Our model is analytically…
We present a dynamical theory of asset price bubbles that exhibits the appearance of bubbles and their subsequent crashes. We show that when speculative trends dominate over fundamental beliefs, bubbles form, leading to the growth of asset…
We describe a model for evolving commodity forward prices that incorporates three important dynamics which appear in many commodity markets: mean reversion in spot prices and the resulting Samuelson effect on volatility term structure,…
A market with defaultable bonds where the bond dynamics is in a Heath-Jarrow-Morton setting and the forward rates are driven by an infinite number of Levy factors is considered. The setting includes rating migrations driven by a Markov…
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…
A new concept of the available force is proposed to investigate the performance of the complex systems having long-range interactions. Since the covariance of average velocity in double time interval and available force equals zero, it is…
We explore the effect of past market movements on the instantaneous correlations between assets within the futures market. Quantifying this effect is of interest to estimate and manage the risk associated to portfolios of futures in a…