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Monte Carlo approximation to optimal investment

May 16, 2013 Comments (0)

This paper sets up a methodology for approximately solving optimal investment problems using duality methods combined with Monte Carlo simulations. In particular, we show how to tackle high dimensional problems in incomplete markets, where traditional methods fail due to the curse of dimensionality.

Emergence of hierarchy in cost driven growth of spatial networks

May 16, 2013 Comments (0)

One of the most important features of spatial networks such as transportation networks, power grids, Internet, neural networks, is the existence of a cost associated with the length of links. Such a cost has a profound influence on the global structure of these networks which usually display a hierarchical spatial organization. The link between local constraints and large-scale structure is however not elucidated and we introduce here a generic model for the growth of spatial networks based on...

Analysis of Realized Volatility in Two Trading Sessions of the Japanese Stock Market

May 16, 2013 Comments (0)

We analyze realized volatilities constructed using high-frequency stock data on the Tokyo Stock Exchange. In order to avoid non-trading hours issue in volatility calculations we define two realized volatilities calculated separately in the two trading sessions of the Tokyo Stock Exchange, i.e. morning and afternoon sessions. After calculating the realized volatilities at various sampling frequencies we evaluate the bias from the microstructure noise as a function of sampling frequency. Taking...

Empirical Analysis of Stochastic Volatility Model by Hybrid Monte Carlo Algorithm

May 16, 2013 Comments (0)

The stochastic volatility model is one of volatility models which infer latent volatility of asset returns. The Bayesian inference of the stochastic volatility (SV) model is performed by the hybrid Monte Carlo (HMC) algorithm which is superior to other Markov Chain Monte Carlo methods in sampling volatility variables. We perform the HMC simulations of the SV model for two liquid stock returns traded on the Tokyo Stock Exchange and measure the volatilities of those stock returns. Then we...

Are financial markets just another aspect of Nature?

May 16, 2013 Comments (0)

The question on the title came through my mind one day as I keep in one hand a paper in nuclear physics and in the other hand a paper in finance and surprisingly conclude that the same formula appear in both articles*. Phenomena from apparently completely different field of research were solved with the help of same equation. Things are getting even weirder saying that the formula I was talking about is the time-independent Schrodinger equation.

Statistical Mechanics of Competitive Resource Allocation

May 10, 2013 Comments (0)

Demand outstrips available resources in most situations, which gives rise to competition, interaction and learning. In this article, we review a broad spectrum of multi-agent models of competition and the methods used to understand them analytically. We emphasize the power of concepts and tools from statistical mechanics to understand and explain fully collective phenomena such as phase transitions and long memory, and the mapping between agent heterogeneity and physical disorder. As these...

Behavioural breaks in the heterogeneous agent model: the impact of herding, overconfidence, and market sentiment

May 10, 2013 Comments (0)

The main aim of this work is to incorporate selected findings from behavioural finance into a Heterogeneous Agent Model using the Brock and Hommes (1998) framework. Behavioural patterns are injected into an asset pricing framework through the so-called `Break Point Date', which allows us to examine their direct impact. In particular, we analyse the dynamics of the model around the behavioural break. Price behaviour of 30 Dow Jones Industrial Average constituents covering five particularly...

The Effect of Growth On Equality in Models of the Economy

May 10, 2013 Comments (0)

We investigate the relation between economic growth and equality in a modified version of the agent-based asset exchange model (AEM). The modified model is a driven system that for a range of parameter space is effectively ergodic in the limit of an infinite system. We find that the belief that "a rising tide lifts all boats" does not always apply, but the effect of growth on the wealth distribution depends on the nature of the growth. In particular, we find that the rate of growth, the way the...

The predictability of consumer visitation patterns

May 10, 2013 Comments (0)

We consider hundreds of thousands of individual economic transactions to ask: how predictable are consumers in their merchant visitation patterns? Our results suggest that, in the long-run, much of our seemingly elective activity is actually highly predictable. Notwithstanding a wide range of individual preferences, shoppers share regularities in how they visit merchant locations over time. Yet while aggregate behavior is largely predictable, the interleaving of shopping events introduces...

IMDB network revisited: unveiling fractal and modular properties from a typical small-world network

May 10, 2013 Comments (0)

We study a subset of the movie collaboration network, imdb.com, where only adult movies are included. We show that there are many benefits in using such a network, which can serve as a prototype for studying social interactions. We find that the strength of links, i.e., how many times two actors have collaborated with each other, is an important factor that can significantly influence the network topology. We see that when we link all actors in the same movie with each other, the network...