Visualizing the log-periodic pattern before crashes

We present a method for visualizing the pattern which we believe to be a precursor signature of financial crashes (or ruptures). The log-periodicity of the pattern is investigated through the envelope function technique. Three periods of the Dow Jones Industrial Average (DJIA) are investigated: 1982-1987, 1992-1997 and 1993-1998. The presence of a rupture in the end of 1998 is outlined from data taken before the end of August 1998. Received 15 October 1998 and Received in final form 19 November 1998     

A simulation study of an asymmetric exclusion model with open and periodic boundaries for parallel dynamics

The effect of jumping rate probability on the phase diagram of an asymmetric exclusion model is studied by numerical simulations. Density, current and velocity of particles are calculated for parallel dynamics. In the open boundaries case for one species of particles (particles 1), a passage from first to second order transition occurs by decreasing the jumping rate. In the periodic boundaries case, by introducing another species of particle (particle 2) which plays the role of obstacle for particles 1, the average velocity of particles 1 increases with increasing the jumping rate for small density. While the average velocity of particle 2 decreases for small and intermediate densities. Received: 21 October 1997     

Learning, competition and cooperation in simple games

The minority model was introduced to study the competition between agents with limited information. It has the remarkable feature that, as the number of strategies available to the agents increases, the collective gain made by the agents is reduced. This crowd effect arises from the fact that only a minority can profit at each moment, while all agents make their choices using the same input. We show that the properties of the model change drastically if the agents make choices based on their individual stories, keeping all remaining rules unaltered. This variation reduces the intrinsic frustration of the model, and improves the tendency towards cooperation and self organization. We finally study the stable mixing of individual and collective behavior. Received 30 June 1999 and Received in final form 27 September 1999     

Modelling fluctuations of financial time series: from cascade process to stochastic volatility model

In this paper, we provide a simple, “generic” interpretation of multifractal scaling laws and multiplicative cascade process paradigms in terms of volatility correlations. We show that in this context 1/f power spectra, as recently observed in reference [23], naturally emerge. We then propose a simple solvable “stochastic volatility” model for return fluctuations. This model is able to reproduce most of recent empirical findings concerning financial time series: no correlation between price variations, long-range volatility correlations and multifractal statistics. Moreover, its extension to a multivariate context, in order to model portfolio behavior, is very natural. Comparisons to real data and other models proposed elsewhere are provided. Received 22 May 2000     

Competition, efficiency and collective behavior in the “El Farol” bar model

The El Farol bar model, proposed to study the dynamics of competition of agents in a variety of contexts (W.B. Arthur, Amer. Econ. Assoc. Pap. Proc. 84, 406 (1994)) is studied. We characterize in detail the three regions of the phase diagram (efficient, better than random and inefficient) of the simplest version of the model (D. Challet, Y.-C. Zhang, Physica A 246, 407 (1997)). The efficient region is shown to have a rich structure, which is investigated in some detail. Changes in the payoff function enhance further the tendency of the model towards a wasteful distribution of resources. Received 13 November 1998     

Fundamental framework for “technical analysis” of market prices

Starting from the characterization of the past time evolution of market prices in terms of two fundamental indicators, price velocity and price acceleration, we construct a general classification of the possible patterns characterizing the deviation or defects from the random walk market state and its time-translational invariant properties. The classification relies on two dimensionless parameters, the Froude number characterizing the relative strength of the acceleration with respect to the velocity and the time horizon forecast dimensionalized to the training period. Trend-following and contrarian patterns are found to coexist and depend on the dimensionless time horizon. The classification is based on the symmetry requirements of invariance with respect to change of price units and of functional scale-invariance in the space of scenarii. This “renormalized scenario” approach is fundamentally probabilistic in nature and exemplifies the view that multiple competing scenarii have to be taken into account for the same past history. Empirical tests are performed on about nine to thirty years of daily returns of twelve data sets comprising some major indices (Dow Jones, SP500, Nasdaq, DAX, FTSE, Nikkei), some major bonds (JGB, TYX) and some major currencies against the US dollar (GBP, CHF, DEM, JPY). Our “renormalized scenario” exhibits statistically significant predictive power in essentially all market phases. In contrast, a trend following strategy and following strategy perform well only on different and specific market phases. The value of the “renormalized scenario” approach lies in the fact that it always selects the best of the two, based on a calculation of the stability of their predicted market trajectories. Received 3 October 1999     

Domino effect for world market fluctuations

In order to emphasize cross-correlations for fluctuations in major market places, series of up and down spins are built from financial data. Patterns frequencies are measured, and statistical tests performed. Strong cross-correlations are emphasized, proving that market moves are collective behaviors. Received 15 January 2000     

Statistical equilibrium in simple exchange games I

This erratum corrects a mistake in reference [E. Scalas, U. Garibaldi, S. Donadio, Eur. Phys. J. B 53, 267 (2006)]. In that paper, we needed an aperiodic version of the BDY game, but, in formula (1), we incorrectly presented a periodic transition matrix of period 2 in the special case of g = 2 agents. Here, we present the right aperiodic version.     

Block persistence

We define a block persistence probability p _l (t) as the probability that the order parameter integrated on a block of linear size l has never changed sign since the initial time in a phase-ordering process at finite temperature T<T _c . We argue that in the scaling limit of large blocks, where z is the growth exponent (), is the global (magnetization) persistence exponent and f(x) decays with the local (single spin) exponent for large x. This scaling is demonstrated at zero temperature for the diffusion equation and the large-n model, and generically it can be used to determine easily from simulations of coarsening models. We also argue that and the scaling function do not depend on temperature, leading to a definition of at finite temperature, whereas the local persistence probability decays exponentially due to thermal fluctuations. These ideas are applied to the study of persistence for conserved models. We illustrate our discussions by extensive numerical results. We also comment on the relation between this method and an alternative definition of at finite temperature recently introduced by Derrida [Phys. Rev. E 55, 3705 (1997)]. Received: 25 February 1998 / Revised: 24 July 1998 / Accepted: 27 July 1998     

”Direct” causal cascade in the stock market

We use wavelets to decompose the volatility (standard deviation) of intraday (S&P500) return data across scales. We show that when investigating two-point correlation functions of the volatility logarithms across different time scales, one reveals the existence of a causal information cascade from large scales (i.e. small frequencies) to fine scales. We quantify and visualize the information flux across scales. We provide a possible interpretation of our findings in terms of market dynamics. Received: 9 January 1998 / Received in final form and accepted: 13 January 1998     

“String” formulation of the dynamics of the forward interest rate curve

We propose a formulation of the term structure of interest rates in which the forward curve is seen as the deformation of a string. We derive the general condition that the partial differential equations governing the motion of such string must obey in order to account for the condition of absence of arbitrage opportunities. This condition takes a form similar to a fluctuation-dissipation theorem, albeit on the same quantity (the forward rate), linking the bias to the covariance of variation fluctuations. We provide the general structure of the models that obey this constraint in the framework of stochastic partial (possibly non-linear) differential equations. We derive the general solution for the pricing and hedging of interest rate derivatives within this framework, albeit for the linear case (we also provide in the appendix a simple and intuitive derivation of the standard European option problem). We also show how the “string” formulation simplifies into a standard N-factor model under a Galerkin approximation. Received: 30 January 1998 / Revised: 12 February 1998 / Accepted: 16 February 1998     

Application of the wavelet transform in the laminar turbulent transition for a flow in a mixed convection phenomenon

The aim of this paper is to show the effect of secondary flows caused by natural convection on the laminar-turbulent hydrodynamic transition. It is not a question of measuring a critical threshold value of Reynolds number of transition but only to estimate the degree of turbulence in the transition regime, i.e. weak turbulence in the case of superposition (mixed convection) or not (forced convection) of secondary flows on the forced flow. This is possible thanks to the application of the wavelet transform. The calculation of the H?lder exponent, associated with the maximum value of the singularity spectrum for two configurations, vertical (forced convection) and horizontal (mixed convection) allows the degree of turbulence to be measured in both cases. The variation of the H?lder exponent versus the Reynolds number has enabled it to be shown that the secondary flows stabilise the main flow and stifle the beginnings of the turbulence during the regime of transition to turbulence; these kinds of results have also been shown in literature. Generally, large-sized secondary flows (for example Dean's flows) stabilise the turbulence. Our work confirms this, through an experiment carried out in identical conditions for mixed convection (horizontal flow) and forced convection (vertical flow). Received 30 March 1998 and Received in final form 28 April 1999     

Truncated Lévy laws and 2D turbulence

We study the probability distribution functions and scaling properties of truncated Lévy processes with sharp cut-offs. We find that they display features analog to those observed in some 2D numerical simulations of turbulence. Received: 29 October 1997 / Revised: 12 February 1998 / Accepted: 10 April 1998     

Stochastic multiresonance in a bistable sawtooth potential driven by correlated multiplicative and additive noise

We present an analytic investigation of the signal-to-noise ratio (SNR) by studying the bistable sawtooth system driven by correlated Gaussian white noises. The analytic expression of SNR is obtained. Based on it, we detect the phenomenon of stochastic multiresonance, which arises from the dependence of SNR upon the noises correlation coefficient. Furthermore, there exists not only resonance, but also suppression in the SNR∼D (the additive noise intensity) curve and the SNR∼Q (the multiplicative noise intensity) curve. Received 26 February 2002 / Received in final form 12 July 2002 Published online 17 September 2002     

Low q-moment multifractal analysis of Gold price, Dow Jones Industrial Average and BGL-USD exchange rate

An estimate of the low q-moment values of the assumed multifractal spectrum of Gold price, Dow Jones Industrial Average (DJIA) and Bulgarian Lev - USA Dollar (BGL-USD) exchange rate over a 6 1/2 year time span has been made. The findings can be compared to the analysis made on 23 foreign currency exchange rates by Vandewalle and Ausloos but there is a clear indication of some differences. Comparison to fractional Brownian motion is made. The analysis shows that these three financial data are not likely fractal but rather multifractal indeed. Received 17 October 1998 and Received in final form 2 November 1998     

Escape of Brownian particles in a bistable sawtooth potential driven by correlated white noises

An exact analytic expression of the relative escape rate (RER) for Brownian particles in a bistable sawtooth potential driven by correlated white noises is obtained. It is found that the RER vs. R (the multiplicative to the additive noise intensities ratio) exhibits a suppression platform for positive correlation, whereas the resonant activation and suppression platform appear successively for negative correlation. The mechanism of the present phenomena is explained. The effects of a nonlinear potential on the RER are studied. We have numerically calculated the RER of the system under a parabolic potential and a quartic potential and have compared the differences of the RER in the case of the linear potential and the one of the nonlinear potential. Received 16 September 2000 and Received in final form 15 January 2001     

Stochastic resonance: influence of a f-κ noise spectrum

With the aim of studying stochastic resonance (SR) in a double-well potential when the noise source has a spectral density of the form f^-κ (with varying κ), we have extended a procedure introduced by Kaulakys et al. (Phys. Rev. E 70, 020101 (2004)). In order to achieve an analytical understanding of the results, we have obtained an effective Markovian approximation that allows us to make a systematic study of the effect of such noise on the SR phenomenon. A comparison of the numerical and analytical results shows an excellent qualitative agreement indicating that the effective Markovian approximation is able to correctly describe the general trends.     

Loops in one-dimensional random walks

Distribution of loops in a one-dimensional random walk (RW), or, equivalently, neutral segments in a sequence of positive and negative charges is important for understanding the low energy states of randomly charged polymers. We investigate numerically and analytically loops in several types of RWs, including RWs with continuous step-length distribution. We show that for long walks the probability density of the longest loop becomes independent of the details of the walks and definition of the loops. We investigate crossovers and convergence of probability densities to the limiting behavior, and obtain some of the analytical properties of the universal probability density. Received 8 January 1999