Easy conditions found for simplifying complex systems.
problem Linearizing complex two-input systems.
method Endogenous dynamic feedback with a dimension of at most two.
result Necessary and sufficient conditions for linearizability.
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48 results for “Endogenous feedback”
Test for linearizing 2-input systems with 2D feedback.
problem Linearizability of two-input systems by feedback.
method Algorithmic test for 2D endogenous feedback.
result Systematic derivation of flat outputs.
Stochastic Online Instrumental Variable Regression: Regrets for Endogeneity and Bandit Feedbackcs.LG
New method tackles endogeneity in online learning with improved regret bounds.
problem Endogeneity in real data due to omitted variables, strategic behaviors, etc.
method O2SLS (Online Two-Stage Least Squares) for Instrumental Variable (IV) regression.
result O2SLS achieves identification and oracle regret bounds for stochastic online learning.
In order to disentangle the internal dynamics from exogenous factors within the Autoregressive Conditional Duration (ACD) model, we present an effective measure of endogeneity. Inspired from the Hawkes model, this measure is defined as the average fraction of events that are triggered due to internal feedback mechanism…
The study explains how market-makers' hedging affects stock volatility during gamma-squeeze events.
problem Endogenous volatility amplification in option markets during gamma-squeeze events.
method Developed a theoretical framework linking hedging behavior and market turbulence, incorporating beta-normalized volatility.
result Low-beta stocks amplify volatility more during gamma-squeeze events.
This paper models financial contagion with endogenously determined market liquidity.
problem Financial contagion and its impact on market liquidity during price drops.
method Developed a joint clearing system for interbank payments, asset prices, and market liquidity, with endogenous market capacity.
result Endogenous market liquidity significantly affects system risk during financial contagion.
While implicit feedback (e.g., clicks, dwell times, etc.) is an abundant and attractive source of data for learning to rank, it can produce unfair ranking policies for both exogenous and endogenous reasons. Exogenous reasons typically manifest themselves as biases in the training data, which then get reflected in the l…
We review the evidence that the erratic dynamics of markets is to a large extent of endogenous origin, i.e. determined by the trading activity itself and not due to the rational processing of exogenous news. In order to understand why and how prices move, the joint fluctuations of order flow and liquidity - and the way…
We introduce a new measure of activity of financial markets that provides a direct access to their level of endogeneity. This measure quantifies how much of price changes are due to endogenous feedback processes, as opposed to exogenous news. For this, we calibrate the self-excited conditional Poisson Hawkes model, whi…
Extends QHawkes to MQHawkes for analyzing financial co-jumps.
problem Capturing endogenous co-jumps in financial markets.
method Develops MQHawkes process with quadratic kernels, investigates stationarity, and derives Yule-Walker equations.
result Volatility distribution exhibits power-law behavior with computable exponents.
Partially performative prediction studies how predictive models influence future data.
problem Distribution shift in predictive models due to endogenous and exogenous factors.
method Generalizing performative prediction to capture both endogenous and exogenous sources of distribution shift.
result Developed online analogues of performative stability and optimality for partially performative environments.
Endogenous Liquidity Crisesq-fin.TR
Empirical data reveals that the liquidity flow into the order book (depositions, cancellations andmarket orders) is influenced by past price changes. In particular, we show that liquidity tends todecrease with the amplitude of past volatility and price trends. Such a feedback mechanism inturn increases the volatility, …
Generative model solves financial market equilibria with stable reinforcement learning.
problem Financial market equilibria under realistic frictions and multiple agents.
method Generative adversarial reinforcement learning with decoupling feedback.
result Algorithm learns and predicts asset returns and volatilities.
Model shows AI adoption amplifies financial market risk through prediction, herding, and cognitive dependency.
problem Systemic risk in financial markets due to AI adoption.
method Developed a unified model within an extended rational expectations framework, incorporating endogenous adoption, performative prediction, algorithmic herding, and cognitive dependency.
result Systemic risk multiplier grows superlinearly with AI penetration, implying tail-loss amplification of 18-54%.
The paper examines smoothness of value function in consumption-investment models with borrowing constraints.
problem Investor's optimal consumption and investment under consumption-wealth utility and borrowing constraint.
method Second-order smoothness of value function, optimal consumption-investment policy in feedback form, smooth fit condition.
result The value function is second-order smooth and the constraint is binding under certain conditions.
Optimal contract for a fund manager, with capital injections and endogenous trading constraintsq-fin.PM
In this paper, we construct a solution to the optimal contract problem for delegated portfolio management of the fist-best (risk-sharing) type. The novelty of our result is (i) in the robustness of the optimal contract with respect to perturbations of the wealth process (interpreted as capital injections), and (ii) in …
A model of adaptive, market behavior generating positive returns, volatility and system riskq-fin.TR
We describe a simple model for speculative trading based on adaptive behavior of economic agents.The adaptive behavior is expressed through a feedback mechanism for changing agents' stock-to-bond ratios, depending on the past performance of their portfolios.The stock price is set according to the demand-supply for the …
Model explains stock price bubbles through debt crises and financial crashes.
problem Analyzing financial fragility and stock price bubbles.
method Stock-flow consistent model integrating macroeconomic and financial market dynamics.
result Model demonstrates how credit expansion and crash risk lead to recurrent boom-bust cycles.
The paper tackles reinforcement learning with exogenous variables and rewards.
problem Exogenous state variables and rewards slow reinforcement learning by introducing uncontrolled variation.
method Formalizes exogenous state variables and rewards, decomposes MDP into exogenous and endogenous components, and introduces algorithms to discover these components.
result Optimal policies for the endogenous MDP are also optimal for the original MDP, but the endogenous MDP is easier to solve due to reduced variance.
Extended flatness approach for discrete-time systems considers forward and backward shifts.
problem Defining flatness for discrete-time systems with forward-shifts.
method Introducing backward-shifts to extend flatness definition.
result Extended flat systems maintain key properties like reachability and controllability.
Existence of incomplete Radner equilibrium with endogenous noise tracker.
problem Existence of incomplete Radner equilibrium in a model with endogenous noise tracker.
method Proved existence through a coupled system of ODEs, reduced to two coupled ODEs.
result Endogenous noise tracker leads to higher aggregate welfare for large stock supply.
Endogenous reinsurance pricing in large insurance markets
problem Endogenous reinsurance pricing in large insurance markets
method Stackelberg leader and insurer equilibrium analysis
result Characterization of insurers' equilibrium retention and Stackelberg equilibria
Model shows how relaxed leverage can lead to asset price bubbles.
problem Understanding how financial leverage affects asset prices and growth.
method Developed a macro-finance model with feedback loops between investment and land prices.
result Relaxed leverage can cause unbalanced growth and asset price bubbles.
Transformers can handle endogeneity in linear regression using IV methods.
problem Endogeneity in in-context linear regression models.
method Transformer architecture with gradient-based bi-level optimization and in-context pretraining.
result Transformers provide more robust predictions and estimates than 2SLS in endogenous scenarios.
Importance of Positive Feedbacks and Over-confidence in a Self-Fulfilling Ising Model of Financial Marketscond-mat.stat-mech
Following a long tradition of physicists who have noticed that the Ising model provides a general background to build realistic models of social interactions, we study a model of financial price dynamics resulting from the collective aggregate decisions of agents. This model incorporates imitation, the impact of extern…
Crashes have fascinated and baffled many canny observers of financial markets. In the strict orthodoxy of the efficient market theory, crashes must be due to sudden changes of the fundamental valuation of assets. However, detailed empirical studies suggest that large price jumps cannot be explained by news and are the …
New findings allow infinite mean intensity Hawkes processes to be stable.
problem Stability condition for Hawkes processes with infinite mean intensity.
method Analysis of Quadratic Hawkes processes with infinite mean intensity.
result Quadratic Hawkes processes are always stationary with infinite mean intensity when total endogeneity ratio exceeds unity.
Bitcoin's monetary velocity is constrained by network friction, leading to significant utility contraction during shocks.
problem Bitcoin's monetary velocity is limited by network congestion, causing significant utility loss during economic shocks.
method Empirical analysis using Transaction Cost Index and threshold regression to identify structural breaks and velocity contraction.
result Network friction significantly reduces Bitcoin's monetary velocity, leading to a net utility contraction of -9.39% during shocks.
Endogeneous Versus Exogeneous Shocks in Systems with Memorycond-mat.stat-mech
Systems with long-range persistence and memory are shown to exhibit different precursory as well as recovery patterns in response to shocks of exogeneous versus endogeneous origins. By endogeneous, we envision either fluctuations resulting from an underlying chaotic dynamics or from a stochastic forcing origin which ma…
Endogenous business cycles explain higher comovement across countries.
problem Standard models struggle to explain high comovement in business cycles across countries.
method Developed a demand-driven reduced-form model with strategic complementarities and international trade linkages.
result Combining endogenous business cycles with exogenous shocks matches empirical comovement levels.
Study classifies stock price jumps as exogenous or endogenous using news data.
problem Differentiating between exogenous and endogenous price jumps.
method Synchronized news data with order book data to analyze stock price movements.
result Exogenous jumps are abrupt and follow a decaying power-law, while endogenous jumps are progressively accelerating.
In this article we consider the volatility inference in the presence of both market microstructure noise and endogenous time. Estimators of the integrated volatility in such a setting are proposed, and their asymptotic properties are studied. Our proposed estimator is compared with the existing popular volatility estim…
Using microscopic price models based on Hawkes processes, it has been shown that under some no-arbitrage condition, the high degree of endogeneity of markets together with the phenomenon of metaorders splitting generate rough Heston-type volatility at the macroscopic scale. One additional important feature of financial…
Paper corrects bias in online learning algorithms with endogenous data.
problem Dynamic selection problems in online learning algorithms with endogenous data.
method Instrumental-variable-based algorithm to correct bias, proving central limit theorem.
result Obtains true parameter values and low regret levels.
Volatility fingerprints of large shocks: Endogeneous versus exogeneouscond-mat.stat-mech
Finance is about how the continuous stream of news gets incorporated into prices. But not all news have the same impact. Can one distinguish the effects of the Sept. 11, 2001 attack or of the coup against Gorbachev on Aug., 19, 1991 from financial crashes such as Oct. 1987 as well as smaller volatility bursts? Using a …
The paper optimizes portfolios using MACD signals derived from price history.
problem Optimizing risky asset portfolios with latent mean-reverting and momentum factors.
method Derives optimal strategies based on MACD signals from EMA processes.
result Establishes admissibility and verification of optimal strategies.
The paper tackles performative policy learning with strategic agents, improving scalability and generalizability.
problem Strategic agents adjust their features in response to a released policy, causing endogenous distribution shifts.
method Relaxing parametric assumptions, the paper uncovers a low-dimensional structure in distribution shifts and proposes a gradient-based policy optimization algorithm.
result The proposed algorithm achieves high sample efficiency and provides theoretical guarantees for convergence.
A new boosting method corrects endogeneity bias in instrumental variable regression.
problem Endogeneity bias in instrumental variable regression.
method Causal Gradient Boosting (boostIV) that builds on gradient boosting algorithm.
result boostIV is consistent and performs well in finite samples compared to other methods.
The statistical physics of discovering exogenous and endogenous factors in a chain of eventsphysics.data-an
Method estimates exogenous and endogenous factors from event times.
problem Estimating factors influencing event occurrence.
method Combines inhomogeneous Poisson and Hawkes processes, fits using free energy minimization.
result Four regimes identified based on factor detection.
We consider un-discounted reinforcement learning (RL) in Markov decision processes (MDPs) under temporal drifts, ie, both the reward and state transition distributions are allowed to evolve over time, as long as their respective total variations, quantified by suitable metrics, do not exceed certain variation budgets. …
A dealer manages quotes and rejection rules to control slippage risk in FX markets.
problem Managing inventory risk and latency risk in OTC FX market making.
method Dynamic programming and adiabatic-quadratic approximation to optimize quotes and rejection rules.
result Developed a method to optimize quotes and rejection rules for managing slippage risk.
Paper proposes a new model to assess risks in energy storage systems considering both exogenous and endogenous uncertainties.
problem Current risk assessment ignores the stochastic nature of energy storage availability.
method Data-driven unified model with exogenous and endogenous uncertainty description for four types of generic energy storage.
result Comparative results show more severe risks for endogenous uncertainty, suggesting new strategies for system operators.
We present a simple agent-based model of a financial system composed of leveraged investors such as banks that invest in stocks and manage their risk using a Value-at-Risk constraint, based on historical observations of asset prices. The Value-at-Risk constraint implies that when perceived risk is low, leverage is high…
We developed a novel statistical method to identify structural differences between networks characterized by structural equation models. We propose to reparameterize the model to separate the differential structures from common structures, and then design an algorithm with calibration and construction stages to identif…
This paper highlights the role of risk neutral investors in generating endogenous bubbles in derivatives markets. We find that a market for derivatives, which has all the features of a perfect market except completeness and has some risk neutral investors, can exhibit extreme price movements which represent a violation…
Study optimal reinsurance for insurers with a reinsurer's default risk.
problem Optimal reinsurance for insurers with a reinsurer's default risk.
method Analytical solution for two types of reinsurance contracts.
result Joint effect of reinsurer's default and background risk on reinsurance demand.
Investor optimizes utility in a market with endogenous pricing.
problem Maximizing utility in an incomplete market with endogenous pricing.
method Characterized optimality via FBSDEs and BSPDEs using generalized subgradients.
result Existence and smoothness of solutions for optimal investment and FBSDEs.
We present a model that investigates the spontaneous emergence of randomness in equity market microstructure. The phase space analysis of our model exposes an endogenous source of fluctuation in price and volume. We formulate a control problem for maximizing price regularity and stability while minimizing entanglement …