Related papers: Financial markets as adaptative ecosystems
Black-Scholes implied volatility is a quantile. The insight follows from the normalized option price being a probability on the variance scale, with the inverse Gaussian distribution providing the link. It enables analytically exact and…
We proposed a model of interacting market agents based on the Ising spin model. The agents can take three actions: "buy," "sell," or "stay inactive." We defined a price evolution in terms of the system magnetization. The model reproduces…
We introduce a stochastic price model where, together with a random component, a moving average of logarithmic prices contributes to the price formation. Our model is tested against financial datasets, showing an extremely good agreement…
Metastability is a phenomenon observed in stochastic systems which stay in a false-equilibrium within a region of its state space until the occurrence of a sequence of rare events that leads to an abrupt transition to a different region.…
We propose that the minimal requirements for a model of stock market price fluctuations should comprise time asymmetry, robustness with respect to connectivity between agents, ``bounded rationality'' and a probabilistic description. We also…
The Bohmian quantum approach is implemented to analyze the financial markets. In this approach, there is a wave function that leads to a quantum potential. This potential can explain the relevance and entanglements of the agent's behaviors…
We contrast Arbitrage Pricing Theory (APT), the theoretical basis for the development of financial instruments, with a dynamical picture of an interacting market, in a simple setting. The proliferation of financial instruments apparently…
The ultimate value of theories of the fundamental mechanisms comprising the asset price in financial systems will be reflected in the capacity of such theories to understand these systems. Although the models that explain the various states…
Liquidity and trading activity on constant function market makers (CFMMs) such as Uniswap, Curve, and Balancer has grown significantly in the second half of 2020. Much of the growth of these protocols has been driven by incentivized pools…
We explore a simple lattice field model intended to describe statistical properties of high frequency financial markets. The model is relevant in the cross-disciplinary area of econophysics. Its signature feature is the emergence of a…
As markets have digitized, the number of tradable products has skyrocketed. Algorithmically constructed portfolios of these assets now dominate public and private markets, resulting in a combinatorial explosion of tradable assets. In this…
Price fluctuations in financial markets can be characterized by L\'evy's stable distribution, which is supported by the generalized central limit system. When the stable parameters were estimated from four different stock markets in long…
Financial time series have been investigated to follow fat-tailed distributions. Further, an empirical probability distribution sometimes shows cut-off shapes on its tails. To describe this stylized fact, we incorporate the cut-off effect…
Option pricing is an integral part of modern financial risk management. The well-known Black and Scholes (1973) formula is commonly used for this purpose. This paper is an attempt to extend their work to a situation in which the…
Cryptocurrencies fluctuate in markets with high price volatility, posing significant challenges for investors. To aid in informed decision-making, systems predicting cryptocurrency market movements have been developed, typically focusing on…
Arguably the most important problem in quantitative finance is to understand the nature of stochastic processes that underlie market dynamics. One aspect of the solution to this problem involves determining characteristics of the…
The effectiveness of utility-maximization techniques for portfolio management relies on our ability to estimate correctly the parameters of the dynamics of the underlying financial assets. In the setting of complete or incomplete financial…
We describe a simple model for speculative trading based on adaptive behavior of economic agents.The adaptive behavior is expressed through a feedback mechanism for changing agents' stock-to-bond ratios, depending on the past performance of…
In a financial exchange, market impact is a measure of the price change of an asset following a transaction. This is an important element of market microstructure, which determines the behaviour of the market following a trade. In this…
The expOU stochastic volatility model is capable of reproducing fairly well most important statistical properties of financial markets daily data. Among them, the presence of multiple time scales in the volatility autocorrelation is perhaps…