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Matteo Marsili

Publications and source records attributed to Matteo Marsili.

At least 73 records · Page 4Linked to original sources
arXiv2012

Impact of meta-order in the Minority Game

We study the market impact of a meta-order in the framework of the Minority Game. This amounts to studying the response of the market when introducing a trader who buys or sells a fixed amount h for a finite time T. This perturbation introduces statistical arbitrages that traders exploit by adapting their trading strategies. The market impact depends on the nature of the stationary state: We find that the permanent impact is zero in the unpredictable (information efficient) phase, while in the predictable phase it is non-zero and grows linearly with the size of the meta-order. This establishes a quantitative link between information efficiency and trading efficiency (i.e. market impact). By using statistical mechanics methods for disordered systems, we are able to fully characterize the response in the predictable phase, to relate execution cost to response functions and obtain exact results for the permanent impact.

q-fin.TR↗
arXiv2012

Threshold functions for distinct parts: revisiting Erdos-Lehner

We study four problems: put $n$ distinguishable/non-distinguishable balls into $k$ non-empty distinguishable/non-distinguishable boxes randomly. What is the threshold function $k=k(n) $ to make almost sure that no two boxes contain the same number of balls? The non-distinguishable ball problems are very close to the Erd\H os--Lehner asymptotic formula for the number of partitions of the integer $n$ into $k$ parts with $k=o(n^{1/3})$. The problem is motivated by the statistics of an experiment, where we only can tell whether outcomes are identical or different.

math.CO↗
arXiv2012

Financial instability from local market measures

We study the emergence of instabilities in a stylized model of a financial market, when different market actors calculate prices according to different (local) market measures. We derive typical properties for ensembles of large random markets using techniques borrowed from statistical mechanics of disordered systems. We show that, depending on the number of financial instruments available and on the heterogeneity of local measures, the market moves from an arbitrage-free phase to an unstable one, where the complexity of the market - as measured by the diversity of financial instruments - increases, and arbitrage opportunities arise. A sharp transition separates the two phases. Focusing on two different classes of local measures inspired by real markets strategies, we are able to analytically compute the critical lines, corroborating our findings with numerical simulations.

q-fin.TR↗
arXiv2012

Reconstruction of financial network for robust estimation of systemic risk

In this paper we estimate the propagation of liquidity shocks through interbank markets when the information about the underlying credit network is incomplete. We show that techniques such as Maximum Entropy currently used to reconstruct credit networks severely underestimate the risk of contagion by assuming a trivial (fully connected) topology, a type of network structure which can be very different from the one empirically observed. We propose an efficient message-passing algorithm to explore the space of possible network structures, and show that a correct estimation of the network degree of connectedness leads to more reliable estimations for systemic risk. Such algorithm is also able to produce maximally fragile structures, providing a practical upper bound for the risk of contagion when the actual network structure is unknown. We test our algorithm on ensembles of synthetic data encoding some features of real financial networks (sparsity and heterogeneity), finding that more accurate estimations of risk can be achieved. Finally we find that this algorithm can be used to control the amount of information regulators need to require from banks in order to sufficiently constrain the reconstruction of financial networks.

q-fin.RM↗
arXiv2012

Phase transitions in crowd dynamics of resource allocation

We define and study a class of resources allocation processes where $gN$ agents, by repeatedly visiting $N$ resources, try to converge to optimal configuration where each resource is occupied by at most one agent. The process exhibits a phase transition, as the density $g$ of agents grows, from an absorbing to an active phase. In the latter, even if the number of resources is in principle enough for all agents ($g<1$), the system never settles to a frozen configuration. We recast these processes in terms of zero-range interacting particles, studying analytically the mean field dynamics and investigating numerically the phase transition in finite dimensions. We find a good agreement with the critical exponents of the stochastic fixed-energy sandpile. The lack of coordination in the active phase also leads to a non-trivial faster-is-slower effect.

physics.soc-ph↗
arXiv2011

On the criticality of inferred models

Advanced inference techniques allow one to reconstruct the pattern of interaction from high dimensional data sets. We focus here on the statistical properties of inferred models and argue that inference procedures are likely to yield models which are close to a phase transition. On one side, we show that the reparameterization invariant metrics in the space of probability distributions of these models (the Fisher Information) is directly related to the model's susceptibility. As a result, distinguishable models tend to accumulate close to critical points, where the susceptibility diverges in infinite systems. On the other, this region is the one where the estimate of inferred parameters is most stable. In order to illustrate these points, we discuss inference of interacting point processes with application to financial data and show that sensible choices of observation time-scales naturally yield models which are close to criticality.

physics.data-an↗
arXiv2011

Collaboration in Social Networks

The very notion of social network implies that linked individuals interact repeatedly with each other. This allows them not only to learn successful strategies and adapt to them, but also to condition their own behavior on the behavior of others, in a strategic forward looking manner. Game theory of repeated games shows that these circumstances are conducive to the emergence of collaboration in simple games of two players. We investigate the extension of this concept to the case where players are engaged in a local contribution game and show that rationality and credibility of threats identify a class of Nash equilibria -- that we call "collaborative equilibria" -- that have a precise interpretation in terms of sub-graphs of the social network. For large network games, the number of such equilibria is exponentially large in the number of players. When incentives to defect are small, equilibria are supported by local structures whereas when incentives exceed a threshold they acquire a non-local nature, which requires a "critical mass" of more than a given fraction of the players to collaborate. Therefore, when incentives are high, an individual deviation typically causes the collapse of collaboration across the whole system. At the same time, higher incentives to defect typically support equilibria with a higher density of collaborators. The resulting picture conforms with several results in sociology and in the experimental literature on game theory, such as the prevalence of collaboration in denser groups and in the structural hubs of sparse networks.

physics.soc-ph↗
arXiv2011

Optimal Liquidation Strategies Regularize Portfolio Selection

We consider the problem of portfolio optimization in the presence of market impact, and derive optimal liquidation strategies. We discuss in detail the problem of finding the optimal portfolio under Expected Shortfall (ES) in the case of linear market impact. We show that, once market impact is taken into account, a regularized version of the usual optimization problem naturally emerges. We characterize the typical behavior of the optimal liquidation strategies, in the limit of large portfolio sizes, and show how the market impact removes the instability of ES in this context.

q-fin.PM↗
arXiv2010

On information efficiency and financial stability

We study a simple model of an asset market with informed and non-informed agents. In the absence of non-informed agents, the market becomes information efficient when the number of traders with different private information is large enough. Upon introducing non-informed agents, we find that the latter contribute significantly to the trading activity if and only if the market is (nearly) information efficient. This suggests that information efficiency might be a necessary condition for bubble phenomena, induced by the behavior of non-informed traders, or conversely that throwing some sands in the gears of financial markets may curb the occurrence of bubbles.

q-fin.TR↗
arXiv2009

Financial crises and the evaporation of trust

Trust lies at the crux of most economic transactions, with credit markets being a notable example. Drawing on insights from the literature on coordination games and network growth, we develop a simple model to clarify how trust breaks down in financial systems. We show how the arrival of bad news about a financial agent can lead others to lose confidence in it and how this, in turn, can spread across the entire system. Our results emphasize the role of hysteresis -- it takes considerable effort to regain trust once it has been broken. Although simple, the model provides a plausible account of the credit freeze that followed the global financial crisis of 2007/8, both in terms of the sequence of events and the measures taken (and being proposed) by the authorities.

q-fin.GN↗
arXiv2009

Assessing the relevance of node features for network structure

Networks describe a variety of interacting complex systems in social science, biology and information technology. Usually the nodes of real networks are identified not only by their connections but also by some other characteristics. Examples of characteristics of nodes can be age, gender or nationality of a person in a social network, the abundance of proteins in the cell taking part in a protein-interaction networks or the geographical position of airports that are connected by directed flights. Integrating the information on the connections of each node with the information about its characteristics is crucial to discriminating between the essential and negligible characteristics of nodes for the structure of the network. In this paper we propose a general indicator, based on entropy measures, to quantify the dependence of a network's structure on a given set of features. We apply this method to social networks of friendships in US schools, to the protein-interaction network of Saccharomyces cerevisiae and to the US airport network, showing that the proposed measure provides information which complements other known measures.

physics.soc-ph↗
arXiv2009

Eroding market stability by proliferation of financial instruments

We contrast Arbitrage Pricing Theory (APT), the theoretical basis for the development of financial instruments, with a dynamical picture of an interacting market, in a simple setting. The proliferation of financial instruments apparently provides more means for risk diversification, making the market more efficient and complete. In the simple market of interacting traders discussed here, the proliferation of financial instruments erodes systemic stability and it drives the market to a critical state characterized by large susceptibility, strong fluctuations and enhanced correlations among risks. This suggests that the hypothesis of APT may not be compatible with a stable market dynamics. In this perspective, market stability acquires the properties of a common good, which suggests that appropriate measures should be introduced in derivative markets, to preserve stability.

q-fin.TR↗
arXiv2009

A minimal model for congestion phenomena on complex networks

We study a minimal model of traffic flows in complex networks, simple enough to get analytical results, but with a very rich phenomenology, presenting continuous, discontinuous as well as hybrid phase transitions between a free-flow phase and a congested phase, critical points and different scaling behaviors in the system size. It consists of random walkers on a queueing network with one-range repulsion, where particles can be destroyed only if they can move. We focus on the dependence on the topology as well as on the level of traffic control. We are able to obtain transition curves and phase diagrams at analytical level for the ensemble of uncorrelated networks and numerically for single instances. We find that traffic control improves global performance, enlarging the free-flow region in parameter space only in heterogeneous networks. Traffic control introduces non-linear effects and, beyond a critical strength, may trigger the appearance of a congested phase in a discontinuous manner. The model also reproduces the cross-over in the scaling of traffic fluctuations empirically observed in the Internet, and moreover, a conserved version can reproduce qualitatively some stylized facts of traffic in transportation networks.

cond-mat.stat-mech↗
arXiv2009

Spiraling toward market completeness and financial instability

I study the limit of a large random economy, where a set of consumers invests in financial instruments engineered by banks, in order to optimize their future consumption. This exercise shows that, even in the ideal case of perfect competition, where full information is available to all market participants, the equilibrium develops a marked vulnerability (or susceptibility) to market imperfections, as markets approach completeness and transaction costs vanish. The decrease in transaction costs arises because financial institutions exploit trading instruments to hedge other instruments. This entails trading volumes in the interbank market which diverge in the limit of complete markets. These results suggest that the proliferation of financial instruments exacerbates the effects of market imperfections, calling for theories of market as interacting systems. From a different perspective, in order to prevent an escalation of perverse effects, markets may necessitate institutional structures which are more and more conspicuous as their complexity expands.

q-fin.ST↗
arXiv2009

Economic interactions and the distribution of wealth

This paper analyzes the equilibrium distribution of wealth in an economy where firms' productivities are subject to idiosyncratic shocks, returns on factors are determined in competitive markets, dynasties have linear consumption functions and government imposes taxes on capital and labour incomes and equally redistributes the collected resources to dynasties. The equilibrium distribution of wealth is explicitly calculated and its shape crucially depends on market incompleteness. In particular, a Paretian law in the top tail only arises if capital markets are incomplete. The Pareto exponent depends on the saving rate, on the net return on capital, on the growth rate of population and on portfolio diversification. On the contrary, the characteristics of the labour market mostly affects the bottom tail of the distribution of wealth. The analysis also suggests a positive relationship between growth and wealth inequality.

q-fin.GN↗
arXiv2009

Collaborate, compete and share

We introduce and study a model of an interacting population of agents who collaborate in groups which compete for limited resources. Groups are formed by random matching agents and their worth is determined by the sum of the efforts deployed by agents in group formation. Agents, on their side, have to share their effort between contributing to their group's chances to outcompete other groups and resource sharing among partners, when the group is successful. A simple implementation of this strategic interaction gives rise to static and evolutionary properties with a very rich phenomenology. A robust emerging feature is the coexistence in the population of agents who invest mainly in the success of their group and agents who concentrate in getting the largest share of their group's profits.

physics.soc-ph↗
arXiv2008

Congestion phenomena on complex networks

We define a minimal model of traffic flows in complex networks containing the most relevant features of real routing schemes, i.e. a trade--off strategy between topological-based and traffic-based routing. The resulting collective behavior, obtained analytically for the ensemble of uncorrelated networks, is physically very rich and reproduces results recently observed in traffic simulations on scale-free networks. We find that traffic control is useless in homogeneous graphs but may improves global performance in inhomogeneous networks, enlarging the free-flow region in parameter space. Traffic control also introduces non-linear effects and, beyond a critical strength, may trigger the appearance of a congested phase in a discontinuous manner.

physics.soc-ph↗