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.
The CAPM's market returns are endogenously determined, affecting all assets' expected returns.
problem The standard CAPM's market return assumption is not endogenously consistent.
method Demonstrates the impact of endogenously determined market returns on asset returns and the range of feasible market returns.
result Expected returns are influenced by all assets' risks, and market returns are limited by asset distribution.
Survival strategies in a market with self-determined prices are closely tied to log-optimal investment.
problem Survival of wealth in a market with endogenous prices.
method Assume only one's actions affect prices, use log-optimal strategy, disregard actual prices.
result Survival strategies are asymptotically close to log-optimal strategies.
We study optimal liquidation of a trading position (so-called block order or meta-order) in a market with a linear temporary price impact (Kyle, 1985). We endogenize the pressure to liquidate by introducing a downward drift in the unaffected asset price while simultaneously ruling out short sales. In this setting the l…
Model shows how banks' fears of future defaults can cause immediate financial stress.
problem How banks' future default worries cause immediate financial stress.
method Dynamic interbank model with endogenous distress contagion, mark-to-market valuation adjustment, forward-backward approach.
result Distress contagion acts as a stochastic volatility term leading to clustering and down-market spikes.
We investigate the trading behavior of a large set of single investors trading the highly liquid Nokia stock over the period 2003-2008 with the aim of determining the relative role of endogenous and exogenous factors that may affect their behavior. As endogenous factors we consider returns and volatility, whereas the e…
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.
We investigate an inhomogeneous Ising model in the context of tax evasion dynamics where different types of agents are parametrized via local temperatures and magnetic fields. In particular, we analyse the impact of backauditing and endogenously determined penalty rates on tax compliance. Both features contribute to a …
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.
Model predicts carbon price for green tech adoption.
problem Achieving emission targets with green technology adoption.
method Stationary equilibrium model with endogenous carbon price.
result Carbon price and stationary distribution of firms identified.
This paper optimizes brokerage contracts for multiple clients trading a single asset.
problem Optimizing brokerage contracts for multiple clients trading a single asset.
method Endogenously determines clients' reservation values and strategically chooses clients. Characterizes optimal portfolios computationally.
result Characterizes optimal portfolios of clients and their profits, showing dependence on price impact coefficients.
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.
We test whether the futures prices of some commodity and energy markets are determined by stochastic rules or exhibit nonlinear deterministic endogenous fluctuations. As for the methodologies, we use the maximal Lyapunov exponents (MLE) and a determinism test, both based on the reconstruction of the phase space. In par…
POSCMs extend SCMs for causal modeling with latent contexts.
problem Causal modeling with latent contexts and endogenous mechanisms.
method Kolmogorov-Arnold-Sprecher edge-functional decomposition for explicit parametrization.
result Identifiability of structure and mechanisms under latent context.
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.
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.
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.
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…
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.
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.
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.
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 …
Modeling financial bubbles and crashes with a cubic momentum function.
problem Capturing the micro-level dynamics of investor behavior and panic selling.
method Introducing a cubic function of market momentum to model trend-following and sudden crashes.
result The model successfully replicates complex, nonlinear bubble dynamics.
Method identifies unknown intervention targets in structural causal models from diverse data.
problem Identifying unknown intervention targets in structural causal models from heterogeneous data.
method Two-phase approach: first recovers exogenous noises, second matches with endogenous variables.
result Proposed method uniquely identifies intervention targets under causal sufficiency assumption.
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.
Paper proposes EILLS for invariant linear regression across environments.
problem Estimating true parameter and important variable set in multi-environment settings.
method Environment invariant linear least squares (EILLS) objective function.
result EILLS estimator achieves variable selection consistency and efficient estimation.
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.
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 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…
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 paper extends risk measures to two-step approximations and studies log-concave distributions.
problem Extending classical risk measures to two-step approximations.
method Optimization problem for determining optimal regime thresholds and values for log-concave distributions.
result Conditions for the uniqueness of regime changing in log-concave distributions.
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
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 …
Study detects endogenous bubbles in meme stocks using CI.
problem Detecting endogenous bubbles in meme stocks.
method Used Log-Periodic Power Law (LPPL) Confidence Indicator (CI).
result CI detected numerous bubbles in meme stocks but struggled with predicting exogenous rallies.
We prove the existence of a Radner equilibrium in a model with proportional transaction costs on an infinite time horizon and analyze the effect of transaction costs on the endogenously determined interest rate. Two agents receive exogenous, unspanned income and choose between consumption and investing into an annuity.…
AC-State discovers minimal latent state for control.
problem Discover minimal latent state from sensory information.
method Multi-step inverse model with information bottleneck.
result Guaranteed discovery of control-endogenous latent states.
Study reveals 2020 stock crashes were mostly endogenous, not exogenous.
problem Identifying the cause of the 2020 global stock market crash.
method Applied log-periodic power law singularity (LPPLS) methodology to analyze stock market indexes.
result The 2020 stock market crashes were mostly endogenous, driven by systemic instability.
Geometric theory explains substitutability in market outcomes based on production constraints.
problem Understanding substitutability in markets with structured feasible products.
method Modeling the set of feasible products as a compact Riemannian manifold to study intrinsic geometry and its effects on substitutability.
result Intrinsic geometry of the feasible set governs substitutability and market outcomes, with curvature controlling technological substitution elasticity.
Exogenous state variables and rewards can slow down reinforcement learning by injecting uncontrolled variation into the reward signal. We formalize exogenous state variables and rewards and identify conditions under which an MDP with exogenous state can be decomposed into an exogenous Markov Reward Process involving on…
We develop a finite horizon continuous time market model, where risk averse investors maximize utility from terminal wealth by dynamically investing in a risk-free money market account, a stock written on a default-free dividend process, and a defaultable bond, whose prices are determined via equilibrium. We analyze fi…
We consider a constructive model for asset price bubbles, where the market price W is endogenously determined by the trading activity on the market and the fundamental price WF is exogenously given, as in the work of Jarrow, Protter and Roch (2012). To justify WF from a fundamental point of view, we embed this …