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Explosive Volatility: A Model of Financial Contagion

October 31, 2011 Comments (0)

This paper proposes a model of financial contagion that accounts for explosive, mutually exciting shocks to market volatility. We fit the model using country-level data during the European sovereign debt crisis, which has its roots in the period 2008--2010, and was continuing to affect global markets as of October, 2011. Our analysis shows 950 that existing volatility models are unable to explain two key stylized features of global markets during presumptive contagion periods: shocks to...

Collective Attention and the Dynamics of Group Deals

October 31, 2011 Comments (0)

We present a study of the group purchasing behavior of daily deals in Groupon and LivingSocial and introduce a predictive dynamic model of collective attention for group buying behavior. In our model, the aggregate number of purchases at a given time comprises two types of processes: random discovery and social propagation. We find that these processes are very clearly separated by an in ection point. Using large data sets from both Groupon and LivingSocial we show how the model is able to...

Tracking Traders' Understanding of the Market Using e-Communication Data

October 31, 2011 Comments (0)

Tracking the volume of keywords in Internet searches, message boards, or Tweets has provided an alternative for following or predicting associations between popular interest or disease incidences. Here, we extend that research by examining the role of e-communications among day traders and their collective understanding of the market. Our study introduces a general method that focuses on bundles of words that behave differently from daily communication routines, and uses original data covering...

The dynamics of stock exchange based on the formalism of weak continuous quantum measurement

October 30, 2011 Comments (0)

The problem of measurement in economic models and the possibility of their quantum-mechanical description are considered. It is revealed that the apparent paradox of such a description is associated with a priori requirement of conformity of the model to all the alternatives of free choice of the observer. The measurement of the state of a trader on a stock exchange is formally defined as his responses to the proposals of sale at a fixed price. It is shown that an analogue of Bell's...

Quantum Analog of the Black- Scholes Formula(market of financial derivatives as a continuous weak measurement)

October 30, 2011 Comments (0)

We analyze the properties of optimum portfolios, the price of which is considered a new quantum variable and derive a quantum analog of the Black-Scholes formula for the price of financial variables in assumption that the market dynamics can by considered as its continuous weak measurement at no-arbitrage condition.

Physical Methodology for Economic Systems Modeling

October 30, 2011 Comments (0)

The paper discusses the possibility of constructing economic models using the methodology of model construction in classical mechanics. At the same time, unlike the �econophysical� approach, the properties of economic models are derived without involvement of any equivalent physical properties, but with account of the types of symmetry existing in the economic system. It has been shown that at this approach practically all known mechanical variables have their �economic twins�. The...

Fundamental Measurements in Economics and in the Theory of Consciousness (Manifestation of quantum-mechanical properties of economic objects in slit measurements)

October 30, 2011 Comments (0)

A new constructivist approach to modeling in economics and theory of consciousness is proposed. The state of elementary object is defined as a set of its measurable consumer properties. A proprietor's refusal or consent for the offered transaction is considered as a result of elementary economic measurement. We were also able to obtain the classical interpretation of the quantum-mechanical law of addition of probabilities by introducing a number of new notions. The principle of "local equity"...

Fundamental Measurements in Economics and in the Theory of Consciousness

October 30, 2011 Comments (0)

A new constructivist approach to modeling in economics and theory of consciousness is proposed. The state of element 8be ary object is defined as a set of its measurable consumer properties. A proprietor's refusal or consent for the offered transaction is considered as a result of elementary economic measurement. Elementary (indivisible) technology, in which the object's consumer values are variable, in this case can be formalized as a generalized economic measurement. The algebra of such...

Web search queries can predict stock market volumes

October 26, 2011 Comments (0)

We live in a computerized and networked society where many of our actions leave a digital trace and affect other people's actions. This has lead to the emergence of a new data-driven research field: mathematical methods of computer science, statistical physics and sociometry provide insights on a wide range of disciplines ranging from social science to human mobility. A recent important discovery is that query volumes (i.e., the number of requests submitted by users to search engines on the...

A framework for analyzing contagion in banking networks

October 26, 2011 Comments (0)

A probabilistic framework is introduced that represents stylized banking networks and aims to predict the size of contagion events. In contrast to previous work on random financial networks, which assumes independent connections between banks, the possibility of disassortative edge probabilities a11 (an above average tendency for small banks to link to large banks) is explicitly incorporated. We give a probabilistic analysis of the default cascade triggered by shocking the network. We find that...