Related papers: Are Financial Crashes Predictable?
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…
The efficiency of a modern economy depends on what we call the Value-Tracking Hypothesis: that market prices of key assets broadly track some underlying value. This can be expected if a sufficient weight of market participants are…
Laboratory earthquakes exhibit characteristics of a low dimensional random attractor with a dimension similar to that of natural slow earthquakes. A model of stochastic differential equations based on rate and state-dependent friction…
Catastrophic transitions, where a system shifts abruptly between alternate steady states, are a generic feature of many nonlinear systems. Recently these regime shift were suggested as the mechanism underlies many ecological catastrophes,…
Applications from finance to epidemiology and cyber-security require accurate forecasts of dynamic phenomena, which are often only partially observed. We demonstrate that a system's predictability degrades as a function of temporal…
The value of stocks, indices and other assets, are examples of stochastic processes with unpredictable dynamics. In this paper, we discuss asymmetries in short term price movements that can not be associated with a long term positive trend.…
Systemic financial risk refers to the simultaneous failure or destabilization of multiple financial institutions, often triggered by contagion mechanisms or common exposures to shocks. In this paper, we present a dynamical model of bank…
What is the dominating mechanism of the price dynamics in financial systems is of great interest to scientists. The problem whether and how volatilities affect the price movement draws much attention. Although many efforts have been made,…
We propose that imitation between traders and their herding behaviour not only lead to speculative bubbles with accelerating over-valuations of financial markets possibly followed by crashes, but also to ``anti-bubbles'' with decelerating…
Based on supermodularity ordering properties, we show that convex risk measures of credit losses are nondecreasing w.r.t. credit-credit and, in a wrong-way risk setup, credit-market, covariances of elliptically distributed latent factors.…
For the pedestrian observer, financial markets look completely random with erratic and uncontrollable behavior. To a large extend, this is correct. At first approximation the difference between real price changes and the random walk model…
Researchers have constantly asked whether stock returns can be predicted by some macroeconomic data. However, it is known that macroeconomic data may exhibit nonstationarity and/or heavy tails, which complicates existing testing procedures…
We propose a novel framework for modeling time-varying persistence in economic time series, allowing for smoothly evolving heterogeneity in shock dynamics. We leverage localized regression techniques to flexibly identify changes in…
The rapid development of artificial intelligence methods contributes to their wide applications for forecasting various financial risks in recent years. This study introduces a novel explainable case-based reasoning (CBR) approach without a…
This paper investigates the dynamics of stocks in the S&P500 index for the last 30 years. Using a stochastic geometry technique, we investigate the evolution of the market space and define a new measure for that purpose, which is a robust…
We discuss the statistical properties of index returns in a financial market just after a major market crash. The observed non-stationary behavior of index returns is characterized in terms of the exceedances over a given threshold. This…
This working paper analyzes the gold price dynamics on the basis of methodology developed by Didier Sornette. Our calculations indicate that this dynamics is close to the one of the "bubbles" studied by Sornette and that the most probable…
This paper introduces a novel approach to financial crisis prediction by establishing a thermodynamic-like framework derived from the fluctuation theorem of statistical physics. We define market temperature through the probability ratio of…
It is commonly believed that financial crises "lead to" lower growth of a country during the two-year recession period, which can be reflected by their post-crisis GDP growth. However, by contrasting a causal model with a standard…
The instability of historical risk factor correlations renders their use in estimating portfolio risk extremely questionable. In periods of market stress correlations of risk factors have a tendency to quickly go well beyond estimated…