systemic risk caused by synchronization
TRANSCRIPT
Systemic Risk caused by Synchronization
SYstemic Risk TOmography:
Signals, Measurements, Transmission Channels, and Policy Interventions
Jorgen Vitting Andersen, CNRS, Centre d´Economie de la Sorbonne, Université Paris 1 Panthéon-Sorbonne Collaborators: L. Bellenzier, P. Dellaportas, S. Galam, A Nowak, P. de Peretti, M. Roszczynska, G. Rotundo, R. Savona, S. Stefani, and I. Vrontos SYRTO Project Final Conference, Paris – February 19, 2016
“Socio-Finance: price formation
is a sociological phenomenon.
“Will consider human decision making to happen in
two different ways
i) direct communication between people
or
ii) indirect communication between people through
a medium, say price index (Finance)
-1st level: communication between individuals
- 2nd level: communication between groups of
individuals
Dynamics of indirect communication
of individuals through a price/index
“
Indirect decision making through a medium:
people trading a financial market index
The “symphony” of the market
(complexity theory applied to financial markets)
Synchronization of markets: “price-quakes”
Integrate-and-fire (IAF) oscillators: fireflies
Integrate-and-fire oscillators
Phase transitions, symmetry break and
financial moods
The sand pile model
Understanding Excessive Risk Taking Seen in
Experiments on Financial Markets
• Jørgen Vitting Andersen, CNRS,
Centre d’Economie de la Sorbonne,
University of Paris 1.
• Research in progress, collaborators:
Yifang Liu, Philippe de Peretti, Maxim
Frolov, Roberto Savona, Hayette Gatfaoui,
Rania Kaffel
Individual versus collective risk taking
• Individual risks: Men are known to be more risk loving
compared to women. For real market traders see e.g. :
“Endogenous steroids and financial risk on a London
trading floor”, J. M. Coates and J. Herbert, PNAS, V.105,
16, 6167-72 (2008); “A note on trader Sharpe Ratios”, J.
M. Coates and L. Page, PLoSONE, V.4, 11, e8036 (2009)
• Collective risks: how does a group of traders with
heterogeneous risk profiles influence the formation of
market risks?
Setup of experiments
• Before each experiments individual risk profiles of participants were
obtained from lotteries (C. A. Holt, S. Laury, The American Economic
Review, V. 92, 1644 (2002)
Here’s what happens when a group of men
trade …
Next we let a group of women trade …
Looks similar to the group of men …
Then another group of women … initially this
group of women seem to trade differently…
And indeed in this experiment the group of
women creates a speculative state…
Their speculation however was « dwarfed »
compared to state created by yet another
group of men…
Claim: we need a fluctuation based framework in
order to be able to understand behavior seen in
experiments.
The $-Game
The $-Game
Results: simulations of the $G
Important: Symmetry break
Taking the «temperature» of the market: predicting big
price «swings »
• Internal state of water? Insert a thermometer into the
liquid.
• Internal state of market? «slave » an agent based model to
the price evolution.
• Market in a “hot” or “cold” state.
ACTION
0000 0
0000
0001 0
0100 1
1010
0101 1
0101
0110 1
1011
0111 1
Dynamics of direct communication
between individuals
Changing the « bullishness » in a population
via communication in subgroups
During the day communication takes place in
random subgroups
During the day communication takes place in
random subgroups
During the day communication takes place in
random subgroups
Quantitative description of model
Groupe of size k
Groupes of different sizes
Link between communication and its impact
on the markets
• r(t) the return of the market, RB(t)=[B(t)-
B(t-1)]/B(t), and η(t) Gaussian distributed
with zero mean and std. dev.:
Link between transition probabilities
and the market performance
Main results: reproducing stylized facts
Main results: maximum likelihood analysis
Main results: maximum likelihood analysis
This project has received funding from the European Union’s
Seventh Framework Programme for research, technological
development and demonstration under grant agreement n° 320270
www.syrtoproject.eu
This document reflects only the author’s views.
The European Union is not liable for any use that may be made of the information contained therein.