Related papers: Financial markets as adaptative ecosystems
We study the emergence of instabilities in a stylized model of a financial market, when different market actors calculate prices according to different (local) market measures. We derive typical properties for ensembles of large random…
In this paper we discuss a scaling approach to business fluctuations. Our starting point consists in recognizing that concepts and methods derived from physics have allowed economists to (re)discover a set of stylized facts which have to be…
We present and study a Minority Game based model of a financial market where adaptive agents -- the speculators -- interact with deterministic agents -- called producers. Speculators trade only if they detect predictable patterns which…
Based on 1-minute price changes recorded since year 2012, the fluctuation properties of the rapidly-emerging Bitcoin (BTC) market are assessed over chosen sub-periods, in terms of return distributions, volatility autocorrelation, Hurst…
Observations indicate that the distributions of stock returns in financial markets usually do not conform to normal distributions, but rather exhibit characteristics of high peaks, fat tails and biases. In this work, we assume that the…
We build a simple model of leveraged asset purchases with margin calls. Investment funds use what is perhaps the most basic financial strategy, called "value investing", i.e. systematically attempting to buy underpriced assets. When funds…
Market efficiency at least requires the absence of weak arbitrage opportunities, but this is not sufficient to establish a situation where the market is sensitive, i.e., where it "fully reflects" or "rapidly adjusts to" some information…
Traders in a market typically have widely different, private information on the return of an asset. The equilibrium price of the asset may reflect this information more accurately if the number of traders is large enough compared to the…
An interesting analog circuit for simulating a signal with fluctuations having a probability density function with a power tail has recently been proposed and constructed. The exponent of the power law can be fixed by tuning an appropriate…
A dynamical model is introduced for the formation of a bullish or bearish trends driving an asset price in a given market. Initially, each agent decides to buy or sell according to its personal opinion, which results from the combination of…
The price fluctuations in the financial markets are the result of the individual operations by many individual investors. However for many decades the finacial theory did not use directly this "microscopic representation". The difficulties…
Starting from the observation of the real trading activity, we propose a model of a stockmarket simulating all the typical phases taking place in a stock exchange. We show that there is no need of several classes of agents once one has…
In this paper we compare market price fluctuations with the response to fundamental price drops within the Lux-Marchesi model which is able to reproduce the most important stylized facts of real market data. Major differences can be…
We propose a general interpretation for long-range correlation effects in the activity and volatility of financial markets. This interpretation is based on the fact that the choice between `active' and `inactive' strategies is subordinated…
We study markets with no riskless (safe) asset. We derive the corresponding Black-Scholes-Merton option pricing equations for markets where there are only risky assets which have the following price dynamics: (i) continuous diffusions; (ii)…
In the standard equilibrium and/or arbitrage pricing framework, the value of any asset is uniquely specified from the belief that only the systematic risks need to be remunerated by the market. Here, we show that, even for arbitrary large…
This paper presents a new financial market simulator that may be used as a tool in both industry and academia for research in market microstructure. It allows multiple automated traders and/or researchers to simultaneously connect to an…
We present a dynamical model for the price evolution of financial assets. The model is based in a two level structure. In the first stage one finds an agent-based model that describes the present state of the investors' beliefs,…
In financial markets, the order flow, defined as the process assuming value one for buy market orders and minus one for sell market orders, displays a very slowly decaying autocorrelation function. Since orders impact prices, reconciling…
The Black-Scholes theory of option pricing has been considered for many years as an important but very approximate zeroth-order description of actual market behavior. We generalize the functional form of the diffusion of these systems and…