Related papers: Speculative bubbles and fat tail phenomena in a he…
Large variations in stock prices happen with sufficient frequency to raise doubts about existing models, which all fail to account for non-Gaussian statistics. We construct simple models of a stock market, and argue that the large…
This paper develops a dynamic equilibrium model where agents exhibit a strong form of belief heterogeneity: they disagree about zero probability events. It is shown that, somewhat surprisingly, equilibrium exists in this setting, and that…
It is well known that the distribution of returns from various financial instruments are leptokurtic, meaning that the distributions have "fatter tails" than a Normal distribution, and have skew toward zero. This paper presents a graceful…
Financial time series exhibit a number of interesting properties that are difficult to explain with simple models. These properties include fat-tails in the distribution of price fluctuations (or returns) that are slowly removed at longer…
We present a dynamical theory of asset price bubbles that exhibits the appearance of bubbles and their subsequent crashes. We show that when speculative trends dominate over fundamental beliefs, bubbles form, leading to the growth of asset…
A class of heterogeneous agent models is investigated where investors switch trading position whenever their motivation to do so exceeds some critical threshold. These motivations can be psychological in nature or reflect behaviour…
This paper considers one-dimensional mixed causal/noncausal autoregressive (MAR) processes with heavy tail, usually introduced to model trajectories with patterns including asymmetric peaks and throughs, speculative bubbles, flash crashes,…
In this paper we present a continuous time dynamical model of heterogeneous agents interacting in a financial market where transactions are cleared by a market maker. The market is composed of fundamentalist, trend following and contrarian…
Agent-based models help explain stock price dynamics as emergent phenomena driven by interacting investors. In this modeling tradition, investor behavior has typically been captured by two distinct mechanisms -- learning and heterogeneous…
Fat tails in financial time series and increase of stocks cross-correlations in high volatility periods are puzzling facts that ask for new paradigms. Both points are of key importance in fundamental research as well as in Risk Management…
We propose that a tree-like hierarchical structure represents a simple and effective way to model the emergent behaviour of financial markets, especially markets where there exists a pronounced intersection between social media influences…
We propose a heterogeneous agent market model (HAM) in continuous time. The market is populated by fundamental traders and chartists, who both use simple linear trading rules. Most of the related literature explores stability, price…
A model of fluctuations in the market price including many deterministic dealers, who predict their buying and selling prices from the latest price change, is developed. We show that price changes of the model is approximated by ARCH(1)…
Organizational growth processes have consistently been shown to exhibit a fatter-than-Gaussian growth-rate distribution in a variety of settings. Long periods of relatively small changes are interrupted by sudden changes in all size scales.…
Agent-based models provide a constructive approach to studying emergent dynamics in life-like systems composed of interacting, adaptive agents. Financial markets serve as a canonical example of such systems, where collective price dynamics…
We show that infinite divisibility of a trading commodity leads to a self-sustained price bubble when traders use adaptive investment strategies. The adaptive strategy can be viewed as a psychological response of a trader to the situation…
A broad set of empirical phenomenon in the study of social, economic and machine behaviour can be modelled as complex systems with averaging dynamics. However many of these models naturally result in consensus or consensus-like outcomes. In…
Episodes of market crashes have fascinated economists for centuries. Although many academics, practitioners and policy makers have studied questions related to collapsing asset price bubbles, there is little consensus yet about their causes…
We discuss a method for predicting financial movements and finding pockets of predictability in the price-series, which is built around inferring the heterogeneity of trading strategies in a multi-agent trader population. This work explores…
A characteristic feature of complex systems in general is a tight coupling between their constituent parts. In complex socio-economic systems this kind of behavior leads to self-organization, which may be both desirable (e.g. social…