Critical reflexivity in financial markets: a Hawkes process analysis

We model the arrival of mid-price changes in the E-Mini S&P futures contract as a self-exciting Hawkes process. Using several estimation methods, we find that the Hawkes kernel is power-law with a decay exponent close to -1.15 at short times, less than approximately 10^3 seconds, and crosses over to a second power-law regime with a larger decay exponent of approximately -1.45 for longer times scales in the range [10^3, 10^6] seconds. More importantly, we find that the Hawkes kernel integrates to unity independently of the analysed period, from 1998 to 2011. This suggests that markets are and have always been close to criticality, challenging a recent study which indicates that reflexivity (endogeneity) has increased in recent years as a result of increased automation of trading. However, we note that the scale over which market events are correlated has decreased steadily over time with the emergence of higher frequency trading.Comment: 9 pages, 6 figures. Some clarification and correction made to section II, minor alterations elsewher

Traffic-driven Epidemic Spreading in Finite-size Scale-Free Networks

The study of complex networks sheds light on the relation between the structure and function of complex systems. One remarkable result is the absence of an epidemic threshold in infinite-size scale-free networks, which implies that any infection will perpetually propagate regardless of the spreading rate. The vast majority of current theoretical approaches assumes that infections are transmitted as a reaction process from nodes to all neighbors. Here we adopt a different perspective and show that the epidemic incidence is shaped by traffic flow conditions. Specifically, we consider the scenario in which epidemic pathways are defined and driven by flows. Through extensive numerical simulations and theoretical predictions, it is shown that the value of the epidemic threshold in scale-free networks depends directly on flow conditions, in particular on the first and second moments of the betweenness distribution given a routing protocol. We consider the scenarios in which the delivery capability of the nodes is bounded or unbounded. In both cases, the threshold values depend on the traffic and decrease as flow increases. Bounded delivery provokes the emergence of congestion, slowing down the spreading of the disease and setting a limit for the epidemic incidence. Our results provide a general conceptual framework to understand spreading processes on complex networks.Comment: Final version to be published in Proceedings of the National Academy of Sciences US

A stochastic SIS epidemic model with heterogeneous contacts.

A stochastic model for the spread of an SIS epidemic among a population consisting of N individuals, each having heterogeneous infectiousness and/or susceptibility, is considered and its behavior is analyzed under the practically relevant situation when N is small. The model is formulated as a finite time-homogeneous continuous-time Markov chain X. Based on an appropriate labeling of states, we first construct its infinitesimal rate matrix by using an iterative argument, and we then present an algorithmic procedure for computing steady-state measures, such as the number of infected individuals, the length of an outbreak, the maximum number of infectives, and the number of infections suffered by a marked individual during an outbreak. The time till the epidemic extinction is characterized as a phase-type random variable when there is no external source of infection, and its Laplace-Stieltjes transform and moments are derived in terms of a forward elimination backward substitution solution. The inverse iteration method is applied to the quasi-stationary distribution of X, which provides a good approximation of the process X at a certain time, conditional on non-extinction, after a suitable waiting time. The basic reproduction number R0 is defined here as a random variable, rather than an expected value

Without magic bullets: the biological basis for public health interventions against protein folding disorders

Protein folding disorders of aging like Alzheimer's and Parkinson's diseases currently present intractable medical challenges. 'Small molecule' interventions - drug treatments - often have, at best, palliative impact, failing to alter disease course. The design of individual or population level interventions will likely require a deeper understanding of protein folding and its regulation than currently provided by contemporary 'physics' or culture-bound medical magic bullet models. Here, a topological rate distortion analysis is applied to the problem of protein folding and regulation that is similar in spirit to Tlusty's (2010a) elegant exploration of the genetic code. The formalism produces large-scale, quasi-equilibrium 'resilience' states representing normal and pathological protein folding regulation under a cellular-level cognitive paradigm similar to that proposed by Atlan and Cohen (1998) for the immune system. Generalization to long times produces diffusion models of protein folding disorders in which epigenetic or life history factors determine the rate of onset of regulatory failure, in essence, a premature aging driven by familiar synergisms between disjunctions of resource allocation and need in the context of socially or physiologically toxic exposures and chronic powerlessness at individual and group scales. Application of an HPA axis model is made to recent observed differences in Alzheimer's onset rates in White and African American subpopulations as a function of an index of distress-proneness

Optimal curing policy for epidemic spreading over a community network with heterogeneous population

The design of an efficient curing policy, able to stem an epidemic process at an affordable cost, has to account for the structure of the population contact network supporting the contagious process. Thus, we tackle the problem of allocating recovery resources among the population, at the lowest cost possible to prevent the epidemic from persisting indefinitely in the network. Specifically, we analyze a susceptible-infected-susceptible epidemic process spreading over a weighted graph, by means of a first-order mean-field approximation. First, we describe the influence of the contact network on the dynamics of the epidemics among a heterogeneous population, that is possibly divided into communities. For the case of a community network, our investigation relies on the graph-theoretical notion of equitable partition; we show that the epidemic threshold, a key measure of the network robustness against epidemic spreading, can be determined using a lower-dimensional dynamical system. Exploiting the computation of the epidemic threshold, we determine a cost-optimal curing policy by solving a convex minimization problem, which possesses a reduced dimension in the case of a community network. Lastly, we consider a two-level optimal curing problem, for which an algorithm is designed with a polynomial time complexity in the network size.Comment: to be published on Journal of Complex Network

Computability and Evolutionary Complexity: Markets As Complex Adaptive Systems (CAS)

The purpose of this Feature is to critically examine and to contribute to the burgeoning multi disciplinary literature on markets as complex adaptive systems (CAS). Three economists, Robert Axtell, Steven Durlauf and Arthur Robson who have distinguished themselves as pioneers in different aspects of how the thesis of evolutionary complexity pertains to market environments have contributed to this special issue. Axtell is concerned about the procedural aspects of attaining market equilibria in a decentralized setting and argues that principles on the complexity of feasible computation should rule in or out widely held models such as the Walrasian one. Robson puts forward the hypothesis called the Red Queen principle, well known from evolutionary biology, as a possible explanation for the evolution of complexity itself. Durlauf examines some of the claims that have been made in the name of complex systems theory to see whether these present testable hypothesis for economic models. My overview aims to use the wider literature on complex systems to provide a conceptual framework within which to discuss the issues raised for Economics in the above contributions and elsewhere. In particular, some assessment will be made on the extent to which modern complex systems theory and its application to markets as CAS constitutes a paradigm shift from more mainstream economic analysis

Information-theoretic Reasoning in Distributed and Autonomous Systems

The increasing prevalence of distributed and autonomous systems is transforming decision making in industries as diverse as agriculture, environmental monitoring, and healthcare. Despite significant efforts, challenges remain in robustly planning under uncertainty. In this thesis, we present a number of information-theoretic decision rules for improving the analysis and control of complex adaptive systems. We begin with the problem of quantifying the data storage (memory) and transfer (communication) within information processing systems. We develop an information-theoretic framework to study nonlinear interactions within cooperative and adversarial scenarios, solely from observations of each agent's dynamics. This framework is applied to simulations of robotic soccer games, where the measures reveal insights into team performance, including correlations of the information dynamics to the scoreline. We then study the communication between processes with latent nonlinear dynamics that are observed only through a filter. By using methods from differential topology, we show that the information-theoretic measures commonly used to infer communication in observed systems can also be used in certain partially observed systems. For robotic environmental monitoring, the quality of data depends on the placement of sensors. These locations can be improved by either better estimating the quality of future viewpoints or by a team of robots operating concurrently. By robustly handling the uncertainty of sensor model measurements, we are able to present the first end-to-end robotic system for autonomously tracking small dynamic animals, with a performance comparable to human trackers. We then solve the issue of coordinating multi-robot systems through distributed optimisation techniques. These allow us to develop non-myopic robot trajectories for these tasks and, importantly, show that these algorithms provide guarantees for convergence rates to the optimal payoff sequence

The cultural epigenetics of psychopathology: The missing heritability of complex diseases found?

We extend a cognitive paradigm for gene expression based on the asymptotic limit theorems of information theory to the epigenetic epidemiology of mental disorders. In particular, we recognize the fundamental role culture plays in human biology, another heritage mechanism parallel to, and interacting with, the more familiar genetic and epigenetic systems. We do this via a model through which culture acts as another tunable epigenetic catalyst that both directs developmental trajectories, and becomes convoluted with individual ontology, via a mutually-interacting crosstalk mediated by a social interaction that is itself culturally driven. We call for the incorporation of embedding culture as an essential component of the epigenetic regulation of human mental development and its dysfunctions, bringing what is perhaps the central reality of human biology into the center of biological psychiatry. Current US work on gene-environment interactions in psychiatry must be extended to a model of gene-environment-culture interaction to avoid becoming victim of an extreme American individualism that threatens to create paradigms particular to that culture and that are, indeed, peculiar in the context of the world's cultures. The cultural and epigenetic systems of heritage may well provide the 'missing' heritability of complex diseases now under so much intense discussion