arXiv · arXiv q-fin · 2026
This paper proposes a simple and parsimonious discrete-time simulation model to describe the endogenous formation and periodic collapse of financial bubbles. While existing literature has extensively explored the statistical properties of locally explosive bubble dynamics, capturing the micro-level interplay of investor herd behavior and panic selling within a unified framework remains a challenge. Our model addresse…
Naohiro Yoshida
arXiv · arXiv q-fin · 2014
We apply Geometric Arbitrage Theory to obtain results in mathematical finance for credit markets, which do not need stochastic differential geometry in their formulation. We obtain closed form equations involving default intensities and loss given defaults characterizing the no-free-lunch-with-vanishing-risk condition for corporate bonds, as well as the generic dynamics for credit market allowing for arbitrage possib…
Simone Farinelli, Hideyuki Takada
arXiv · arXiv · 2010
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) market size is a very important element in calculating the overall leverage in a financial market. The…
Wanfeng Yan, Ryan Woodard, Didier Sornette
arXiv · arXiv · 2022
Emerging markets such as India provide investors with returns far greater than those in developed markets; taking the average returns from the period 1995 to 2014 the returns are 4.714% to 3.276% of the developed market. The majority of emerging markets commenced joining with the capital market of the world, thus allowing a huge inflow of capital which in turn paved the path for economic growth. Even though the emerg…
Ganapathy G Gangadharan, N. Suresh
arXiv · arXiv · 2009
The financial crisis of 2008, which started with an initially well-defined epicenter focused on mortgage backed securities (MBS), has been cascading into a global economic recession, whose increasing severity and uncertain duration has led and is continuing to lead to massive losses and damage for billions of people. Heavy central bank interventions and government spending programs have been launched worldwide and es…
Didier Sornette, Ryan Woodard
arXiv · arXiv · 2026
This paper presents an open-economy macroeconomic equilibrium model for Proof-of-Stake (PoS) networks with fee-burn mechanics (EIP-1559) that formalizes the strategic interplay between a Kelly-optimizing rational institutional investor and a utility-driven retail consumer. We analyze network dynamics across two behavioral regimes. In The Unbounded Accumulation Model, the consumer purely accumulates tokens, creating a…
Mikhail Perepelitsa
arXiv · arXiv · 2026
The rapid expansion of artificial intelligence (AI) investment has revived a recurrent question in financial economics: are AI-related assets experiencing a bubble, or is the market capitaliz- ing a durable general-purpose technology? This paper develops a hybrid review and diagnostic framework for evaluating whether AI is in an ongoing financial bubble as of May 2026. The analysis begins from asset-pricing foundatio…
Qianan Wang, Zen Chen
arXiv · arXiv · 2026
We study how AI agents form expectations and trade in experimental asset markets. Using a simulated open-call auction populated by autonomous Large Language Model (LLM) agents, we document three main findings. First, AI agents exhibit classic behavioral patterns: a pronounced disposition effect and recency-weighted extrapolative beliefs. Second, these individual-level patterns aggregate into equilibrium dynamics that…
Shumiao Ouyang, Pengfei Sui
arXiv · arXiv · 2025
Speculative bubbles exhibit common statistical signatures across many financial markets, suggesting the presence of universal underlying mechanisms. We test this hypothesis in the Iranian stock market, an economy that is highly isolated, subject to capital controls, and largely inaccessible to foreign investors. Using the Log-Periodic Power Law Singularity (LPPLS) model, we analyze two major bubble episodes in 2020 a…
Ali Hosseinzadeh
arXiv · arXiv · 2022
We present a general equilibrium macro-finance model with a positive feedback loop between capital investment and land price. As leverage is relaxed beyond a critical value, through the financial accelerator, a phase transition occurs from balanced growth where land prices reflect fundamentals (present value of rents) to unbalanced growth where land prices grow faster than rents, generating land price bubbles. Unbala…
Tomohiro Hirano, Ryo Jinnai, Alexis Akira Toda
arXiv · arXiv · 2022
The rapid rise of cryptocurrency prices led to concerns (e.g. the Financial Stability Board) that this wealth accumulation could detrimentally spill over into other parts of the economy, but evidence is limited. We exploit the tendency for metaverses to issue their own cryptocurrencies along with non-fungible tokens (NFTs) representing virtual real estate ownership (LAND) to provide evidence of the wealth effect. Cry…
Kanis Saengchote
arXiv · arXiv · 2019
We develop a dynamic version of the SSVI parameterisation for the total implied variance, ensuring that European vanilla option prices are martingales, hence preventing the occurrence of arbitrage, both static and dynamic. Insisting on the constraint that the total implied variance needs to be null at the maturity of the option, we show that no model--in our setting--allows for such behaviour. This naturally gives ri…
Mehdi El Amrani, Antoine Jacquier, Claude Martini
arXiv · arXiv · 2019
In this study, we perform a novel analysis of the 2015 financial bubble in the Chinese stock market by calibrating the Log Periodic Power Law Singularity (LPPLS) model to two important Chinese stock indices, SSEC and SZSC, from early 2014 to June 2015. The back tests of the 2015 Chinese stock market bubbles indicates that the LPPLS model can readily detect the bubble behavior of the faster-than-exponential increase c…
Min Shu, Wei Zhu
arXiv · arXiv · 2019
To achieve the ambitious aims of the Paris climate agreement, the majority of fossil-fuel reserves needs to remain underground. As current national government commitments to mitigate greenhouse gas emissions are insufficient by far, actors such as institutional and private investors and the social movement on divestment from fossil fuels could play an important role in putting pressure on national governments on the …
Birte Ewers, Jonathan F. Donges, Jobst Heitzig, Sonja Peterson
arXiv · arXiv · 2016
Data analysis with log-periodical parametrization of the Brent oil price dynamics has allowed to estimate (very approximately) the date when the dashing collapse of the Brent oil price will achieve the absolute minimum level (corresponding to the so-called singularity point), after which there will occur a rather rapid rebound, whereas the accelerating fall of the oil prices which started in mid-2014 will come to an …
Alexey Fomin, Andrey Korotayev, Julia Zinkina
arXiv · arXiv · 2016
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 theoretical concepts. At odd with such a view, using a simple model of choice dynamics from sociophysics, th…
Serge Galam
arXiv · arXiv · 2014
We define a financial bubble as a period of unsustainable growth, when the price of an asset increases ever more quickly, in a series of accelerating phases of corrections and rebounds. More technically, during a bubble phase, the price follows a faster-than-exponential power law growth process, often accompanied by log-periodic oscillations. This dynamic ends abruptly in a change of regime that may be a crash or a s…
Didier Sornette, Peter Cauwels
arXiv · arXiv · 2012
We show that power-law analyses of financial commentaries from newspaper web-sites can be used to identify stock market bubbles, supplementing traditional volatility analyses. Using a four-year corpus of 17,713 online, finance-related articles (10M+ words) from the Financial Times, the New York Times, and the BBC, we show that week-to-week changes in power-law distributions reflect market movements of the Dow Jones I…
Aaron Gerow, Mark Keane