A locally-built, LLM-digested index of recent arXiv papers in quant finance, geometry/topology, and statistical ML — keyword search served straight from SQLite on this machine.
Rational bubbles form in nonstationary models of real assets.
Predicts stock market crashes using rational bubble model.
This paper addresses the statistical properties of time series driven by rational bubbles a la Blanchard and Watson (1982), corresponding to multiplicative maps, whose study has recently be revived recently in physics as a mechanism of intermittent dynamics generating power law distributions. Using insights on the beha…
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 and effects. This review and essay evaluates some of the hypotheses offered to …
The substantial turmoil created by both 2000 dot-com crash and 2008 subprime crisis has fueled the belief that the two classical paradigms of economics, which are the invisible hand and the rational agent, are not appropriate to describe market dynamics and should be abandoned at the benefit of alternative new theoreti…
We propose two rational expectation models of transient financial bubbles with heterogeneous arbitrageurs and positive feedbacks leading to self-reinforcing transient stochastic faster-than-exponential price dynamics. As a result of the nonlinear feedbacks, the termination of a bubble is found to be characterized by a …
We introduce the concept of "negative bubbles" as the mirror image of standard financial bubbles, in which positive feedback mechanisms may lead to transient accelerating price falls. To model these negative bubbles, we adapt the Johansen-Ledoit-Sornette (JLS) model of rational expectation bubbles with a hazard rate de…
We introduce a model of super-exponential financial bubbles with two assets (risky and risk-free), in which rational investors and noise traders co-exist. Rational investors form expectations on the return and risk of a risky asset and maximize their constant relative risk aversion expected utility with respect to thei…
As we show using the notion of equilibrium in the theory of infinite sequential games, bubbles and escalations are rational for economic and environmental agents, who believe in an infinite world. This goes against a vision of a self regulating, wise and pacific economy in equilibrium. In other words, in this context, …
We study and generalize in various ways the model of rational expectation (RE) bubbles introduced by Blanchard and Watson in the economic literature. First, bubbles are argued to be the equivalent of Goldstone modes of the fundamental rational pricing equation, associated with the symmetry-breaking introduced by non-va…
Two-cycle GEILA equilibria are OLG equilibria and vice versa, with applications to indeterminacy and bubbles.
LLMs mimic human traders in finance, but not as much as expected.
We extend the model of rational bubbles of Blanchard and of Blanchard and Watson to arbitrary dimensions d: a number d of market time series are made linearly interdependent via d times d stochastic coupling coefficients. We first show that the no-arbitrage condition imposes that the non-diagonal impacts of any asset i…
We introduce a simple generalization of rational bubble models which removes the fundamental problem discovered by [Lux and Sornette, 1999] that the distribution of returns is a power law with exponent less than 1, in contradiction with empirical data. The idea is that the price fluctuations associated with bubbles mus…
Keeping a basic tenet of economic theory, rational expectations, we model the nonlinear positive feedback between agents in the stock market as an interplay between nonlinearity and multiplicative noise. The derived hyperbolic stochastic finite-time singularity formula transforms a Gaussian white noise into a rich time…
Speculative bubbles have been occurring periodically in local or global real estate markets and are considered a potential cause of economic crises. In this context, the detection of explosive behaviors in the financial market and the implementation of early warning diagnosis tests are of critical importance. The recen…
Using a recently introduced rational expectation model of bubbles, based on the interplay between stochasticity and positive feedbacks of prices on returns and volatility, we develop a new methodology to test how this model classifies 9 time series that have been previously considered as bubbles ending in crashes. The …
LLMs in financial markets show diverse behaviors, from stable to speculative, challenging rational expectations.
By combining (i) the economic theory of rational expectation bubbles, (ii) behavioral finance on imitation and herding of investors and traders and (iii) the mathematical and statistical physics of bifurcations and phase transitions, the log-periodic power law (LPPL) model has been developed as a flexible tool to detec…
Paper evaluates whether AI is a bubble or a productivity revolution.
The bubble is a controversial and important issue. Many methods which based on the rational expectation have been proposed to detect the bubble. However, for some developing countries, epically China, the asset markets are so young that for many companies, there are no dividends and fundamental value, making it difficu…
Standard economic theory assumes that agents in markets behave rationally. However, the observation of extremely large fluctuations in the price of financial assets that are not correlated to changes in their fundamental value, as well as the extreme instance of financial bubbles and crashes, imply that markets (at lea…
The Johansen-Ledoit-Sornette (JLS) model of rational expectation bubbles with finite-time singular crash hazard rates has been developed to describe the dynamics of financial bubbles and crashes. It has been applied successfully to a large variety of financial bubbles in many different markets. Having been developed fo…
Previous analyses of a large ensemble of stock markets have demonstrated that a log-periodic power law (LPPL) behavior of the prices constitutes a qualifying signature of speculative bubbles that often land with a crash. We detect such a LPPL signature in the foreign capital inflow during the bubble on the US markets c…
We present a plausible micro-founded model for the previously postulated power law finite time singular form of the crash hazard rate in the Johansen-Ledoit-Sornette model of rational expectation bubbles. The model is based on a percolation picture of the network of traders and the concept that clusters of connected tr…
By combining (i) the economic theory of rational expectation bubbles, (ii) behavioral finance on imitation and herding of investors and traders and (iii) the mathematical and statistical physics of bifurcations and phase transitions, the log-periodic power law model has been developed as a flexible tool to detect bubbl…
Establishing unambiguously the existence of speculative bubbles is an on-going controversy complicated by the need of defining a model of fundamental prices. Here, we present a novel empirical method which bypasses all the difficulties of the previous approaches by monitoring external indicators of an anomalously growi…
Financial markets are well known for their dramatic dynamics and consequences that affect much of the world's population. Consequently, much research has aimed at understanding, identifying and forecasting crashes and rebounds in financial markets. The Johansen-Ledoit-Sornette (JLS) model provides an operational framew…
The Sornette-Ide differential equation of herding and rational trader behaviour together with very small random noise is shown to lead to crashes or bubbles where the price change goes to infinity after an unpredictable time. About 100 time steps before this singularity, a few predictable roughly log-periodic oscillati…
Leverage is strongly related to liquidity in a market and lack of liquidity is considered a cause and/or consequence of the recent financial crisis. A repurchase agreement is a financial instrument where a security is sold simultaneously with an agreement to buy it back at a later date. Repurchase agreements (repos) ma…
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…
New financial price model using earning yield derived from CIR process.
We present a simple agent-based model to study the development of a bubble and the consequential crash and investigate how their proximate triggering factor might relate to their fundamental mechanism, and vice versa. Our agents invest according to their opinion on future price movements, which is based on three source…
This paper presents a general framework for studying diverse beliefs in dynamic economies. Within this general framework, the characterization of a central-planner general equilbrium turns out to be very easy to derive, and leads to a range of interesting applications. We show how for an economy with log investors hold…
Prices in financial markets exhibit extreme jumps far more often than can be accounted for by external news. Further, magnitudes of price changes are correlated over long times. These so called stylized facts are quantified by scaling laws similar to, for example, turbulent fluids. They are believed to reflect the comp…
Characterizes critical points in convex double and triple bubbles.
Survey on soap bubble partitions and their stability.
Bubbles are essential in certain economic models with high growth and low interest rates.
Study Yang-Mills connections on four-manifolds, derive obstructions to bubbling.
Existence of double bubbles with high constant mean curvatures in Riemannian manifolds.
Defines speculative bubbles in discrete-time models based on discounted stock price losing mass.
Degenerate solutions found in 2D H-system bubbles with higher degrees.
This work presents an asset pricing model that under rational expectation equilibrium perspective shows how, depending on risk aversion and noise volatility, a risky-asset has one equilibrium price that differs in term of efficiency: an informational efficient one (similar to Campbell and Kyle (1993)), and another one …
This is the third installment of the Financial Bubble Experiment. Here we provide the digital fingerprint of an electronic document in which we identify 27 bubbles in 27 different global assets; for 25 of these assets, we present windows of dates of the most likely ending time of each bubble. We will provide that docum…
On 2 November 2009, the Financial Bubble Experiment was launched within the Financial Crisis Observatory (FCO) at ETH Zurich (\url{http://www.er.ethz.ch/fco/}). In that initial report, we diagnosed and announced three bubbles on three different assets. In this latest release of 23 December 2009 in this ongoing experime…
Continuous time analysis of bubble formation in harmonic maps.
Trading bubbles form when traders adapt to price mismatches.
This is the second installment of the Financial Bubble Experiment. Here we provide the digital fingerprint of an electronic document in which we identify 7 bubbles in 7 different global assets; for 4 of these assets, we present windows of dates of the most likely ending time of each bubble. We will provide that documen…