Related papers: Financial markets as adaptative ecosystems
One of the shortcomings of the Black and Scholes model on option pricing is the assumption that trading of the underlying asset does not affect the price of that asset. This assumption can be fulfilled only in perfectly liquid markets.…
Financial markets have developed a lot of strategies to control risks induced by market fluctuations. Mathematics has emerged as the leading discipline to address fundamental questions in finance as asset pricing model and hedging…
We introduce a deterministic dealer model which implements most of the empirical laws, such as fat tails in the price change distributions, long term memory of volatility and non-Poissonian intervals. We also clarify the causality between…
We propose a new set of stylized facts quantifying the structure of financial markets. The key idea is to study the combined structure of both investment strategies and prices in order to open a qualitatively new level of understanding of…
We seek to deepen understanding of the micro-foundations of institutionalization while contributing to a sociological theory of markets by investigating the puzzle of price bubbles in financial markets. We find that such markets, despite…
We review the recent approaches to modelling financial markets based on multi-agent systems. After a brief summary of the basic stylised facts observed in real-market time-series we discuss some simple agent-based systems which are…
In this brief review, we critically examine the recent work done on correlation-based networks in financial systems. The structure of empirical correlation matrices constructed from the financial market data changes as the individual stock…
Based on the tick-by-tick stock prices from the German and American stock markets, we study the statistical properties of the distribution of the individual stocks and the index returns in highly collective and noisy intervals of trading,…
A market model in Stochastic Portfolio Theory is a finite system of strictly positive stochastic processes. Each process represents the capitalization of a certain stock. If at any time no stock dominates almost the entire market, which…
Employing a recent technique which allows the representation of nonstationary data by means of a juxtaposition of locally stationary patches of different length, we introduce a comprehensive analysis of the key observables in a financial…
In order to emphasize cross-correlations for fluctuations in major market places, series of up and down spins are built from financial data. Patterns frequencies are measured, and statistical tests performed. Strong cross-correlations are…
An efficient computational algorithm to price financial derivatives is presented. It is based on a path integral formulation of the pricing problem. It is shown how the path integral approach can be worked out in order to obtain fast and…
Constant and symmetric price impact functions, most commonly used in agent-based market modelling, are shown to give rise to paradoxical and inconsistent outcomes in the simplest case of arbitrage exploitation when open-hold-close actions…
In relation to the traditional financial markets, the cryptocurrency market is a recent invention and the trading dynamics of all its components are readily recorded and stored. This fact opens up a unique opportunity to follow the…
Traditional stochastic control methods in finance struggle in real world markets due to their reliance on simplifying assumptions and stylized frameworks. Such methods typically perform well in specific, well defined environments but yield…
We calculate the realized volatility in the spin model of financial markets and examine the returns standardized by the realized volatility. We find that moments of the standardized returns agree with the theoretical values of standard…
The programmable and composable nature of smart contract protocols has enabled the emergence of novel market structures and asset classes that are architecturally frictional to implement in traditional financial paradigms. This fluidity has…
The dynamics of financial markets are driven by the interactions between participants, as well as the trading mechanisms and regulatory frameworks that govern these interactions. Decision-makers would rather not ignore the impact of other…
We introduce and study a simple model of a limit order-driven market. Traders in this model can either trade at the market price or place a limit order, i.e. an instruction to buy (sell) a certain amount of the stock if its price falls…
We consider a general class of diffusion-based models and show that, even in the absence of an Equivalent Local Martingale Measure, the financial market may still be viable, in the sense that strong forms of arbitrage are excluded and…