Dynamic Instability in Generic Model of Multi-Assets Markets

16 Pages Posted: 23 Nov 2008

See all articles by Matteo Marsili

Matteo Marsili

Abdus Salam International Centre for Theoretical Physics (ICTP)

Giacomo Raffaelli

Deloitte Consulting

Benedicte Ponsot

affiliation not provided to SSRN

Date Written: November 21, 2008

Abstract

We introduce a generic model of a multi-asset financial market, which takes into account the impact of portfolio investment on price dynamics. This captures the fact that financial correlation determine the optimal portfolio but are affected by investment based on it. We show that, under very general conditions, such a feedback on correlations gives rise to an instability when the volume of investment exceeds a critical value. Close to the critical point the model exhibits dynamical correlations very similar to those observed in empirical data.

Suggested Citation

Marsili, Matteo and Raffaelli, Giacomo and Ponsot, Benedicte, Dynamic Instability in Generic Model of Multi-Assets Markets (November 21, 2008). Available at SSRN: https://ssrn.com/abstract=1305205 or http://dx.doi.org/10.2139/ssrn.1305205

Matteo Marsili (Contact Author)

Abdus Salam International Centre for Theoretical Physics (ICTP) ( email )

Strada Costiera 11
Trieste, 34014
Italy

Giacomo Raffaelli

Deloitte Consulting ( email )

General-Guisan-Quai 38
Zürich, 8022
United States

Benedicte Ponsot

affiliation not provided to SSRN ( email )