Related papers: Capital Requirement for Achieving Acceptability
The paper considers model selection in regression under the additional structural constraints on admissible models where the number of potential predictors might be even larger than the available sample size. We develop a Bayesian formalism…
We introduce polynomial processes in the sense of [8] in the context of stochastic portfolio theory to model simultaneously companies' market capitalizations and the corresponding market weights. These models substantially extend volatility…
We analyze a simple model of adaptive competition which captures essential features of a variety of adaptive competitive systems in the social and biological sciences. Each of N agents, at each time step of a game, joins one of two groups.…
We characterize absence of arbitrage with simple trading strategies in a discounted market with a constant bond and several risky assets. We show that if there is a simple arbitrage, then there is a 0-admissible one or an obvious one, that…
This paper is intended to explain, in simple terms, some of the mechanisms and agents common to multiagent financial market simulations. We first discuss the necessity to include an exogenous price time series ("the fundamental value") for…
The waiting time needed for a stock market index to undergo a given percentage change in its value is found to have an up-down asymmetry, which, surprisingly, is not observed for the individual stocks composing that index. To explain this,…
This paper initiates a study into the century-old issue of market predictability from the perspective of computational complexity. We develop a simple agent-based model for a stock market where the agents are traders equipped with simple…
We address the problem of banking system resilience by applying off-equilibrium statistical physics to a system of particles, representing the economic agents, modelled according to the theoretical foundation of the current banking…
We construct and study market models admitting optimal arbitrage. We say that a model admits optimal arbitrage if it is possible, in a zero-interest rate setting, starting with an initial wealth of 1 and using only positive portfolios, to…
In stochastic finance, one traditionally considers the return as a competitive measure of an asset, {\it i.e.}, the profit generated by that asset after some fixed time span $\Delta t$, say one week or one year. This measures how well (or…
This paper provides a general method to directly translate a classical economic framework with a large number of agents into a field-formalism model. This type of formalism allows the analytical treatment of economic models with an…
We point out some major drawbacks in random trading market models and propose a realistic modification which overcomes such drawbacks through `sensible trading'. We apply such trading policy in different situations: a) Agents with zero…
A new framework for asset pricing based on modelling the information available to market participants is presented. Each asset is characterised by the cash flows it generates. Each cash flow is expressed as a function of one or more…
The Consumer Financial Protection Bureau defines the notion of payoff amount as the amount that has to be payed at a particular time in order to completely pay off the debt, in case the lender intends to pay off the loan early, way before…
Agents are represented by nodes on a random graph (e.g., small world or truncated power law). Each agent is endowed with a zero-mean random value that may be either positive or negative. All agents attempt to find relief, i.e., to reduce…
Let $X^1,\ldots, X^d$ be sigma-martingales on $(\Omega,{\cal F}, P)$. We show that every bounded martingale (with respect to the underlying filtration) admits an integral representation w.r.t. $X^1,\ldots, X^d$ if and only if there is no…
We introduce the concept of community consensus in the presence of malicious agents using a well-known median-based consensus algorithm. We consider networks that have multiple well-connected regions that we term communities, characterized…
In this work we study the individual strategies carried out by agents undergoing transactions in wealth exchange models. We analyze the role of risk propensity in the behavior of the agents and find a critical risk, such that agents with…
We provide simple models for the utility function (or psychology) of an actor trading a multitude of goods for money. In this framework, money has no intrinsic consumption value, but is required as a medium of exchange. A collection of such…
We study the problem of determination of asset prices in an incomplete market proposing three different but related scenarios. One scenario uses a market game approach whereas the other two are based on risk sharing or regret minimizing…