Microscopic models of financial markets

This review deals with several microscopic models of financial markets which have been studied by economists and physicists over the last decade: Kim-Markowitz, Levy-Levy-Solomon, Cont-Bouchaud, Solomon-Weisbuch, Lux-Marchesi, Donangelo-Sneppen and Solomon-Levy-Huang. After an overview of simulation approaches in financial economics, we first give a summary of the Donangelo-Sneppen model of monetary exchange and compare it with related models in economics literature. Our selective review then outlines the main ingredients of some influential early models of multi-agent dynamics in financial markets (Kim-Markowitz, Levy-Levy-Solomon). As will be seen, these contributions draw their inspiration from the complex appearance of investors' interactions in real-life markets. Their main aim is to reproduce (and, thereby, provide possible explanations) for the spectacular bubbles and crashes seen in certain historical episodes, but they lack (like almost all the work before 1998 or so) a perspective in terms of the universal statistical features of financial time series. In fact, awareness of a set of such regularities (power-law tails of the distribution of returns, temporal scaling of volatility) only gradually appeared over the nineties. With the more precise description of the formerly relatively vague characteristics (e.g. moving from the notion of fat tails to the more concrete one of a power-law with index around three), it became clear that financial markets dynamics give rise to some kind of universal scaling laws. Showing similarities with scaling laws for other systems with many interacting subunits, an exploration of financial markets as multi-agent systems appeared to be a natural consequence. This topic was pursued by quite a number of contributions appearing in both the physics and economics literature since the late nineties. From the wealth of different flavors of multi-agent models that have appeared by now, we discuss the Cont-Bouchaud, Solomon-Levy-Huang and Lux-Marchesi models. Open research questions are discussed in our concluding section. --

Percolation quantum phase transitions in diluted magnets

We show that the interplay of geometric criticality and quantum fluctuations leads to a novel universality class for the percolation quantum phase transition in diluted magnets. All critical exponents involving dynamical correlations are different from the classical percolation values, but in two dimensions they can nonetheless be determined exactly. We develop a complete scaling theory of this transition, and we relate it to recent experiments in La$_{2}$Cu$_{1-p}$(Zn,Mg)$_{p}$O$_{4}$. Our results are also relevant for disordered interacting boson systems.Comment: 4 pages, 3 eps figures, final version, as publishe

Crossover in the Slow Decay of Dynamic Correlations in the Lorentz Model

The long-time behavior of transport coefficients in a model for spatially heterogeneous media in two and three dimensions is investigated by Molecular Dynamics simulations. The behavior of the velocity auto-correlation function is rationalized in terms of a competition of the critical relaxation due to the underlying percolation transition and the hydrodynamic power-law anomalies. In two dimensions and in the absence of a diffusive mode, another power law anomaly due to trapping is found with an exponent -3 instead of -2. Further, the logarithmic divergence of the Burnett coefficient is corroborated in the dilute limit; at finite density, however, it is dominated by stronger divergences.Comment: Full-length paragraph added that exemplifies the relevance for dense fluids and makes a connection to recently observed, novel long-time tails in a hard-sphere flui

Non-equilibrium multi-scale analysis and coexistence in competing first passage percolation

The main contribution of this paper is the development of a novel approach to multi-scale analysis that we believe can be used to analyse processes with non-equilibrium dynamics. Our approach will be referred to as \emph{multi-scale analysis with non-equilibrium feedback} and will be used to analyse a natural random growth process with competition on $\mathbb{Z}^d$ called \emph{first passage percolation in a hostile environment} that consists of two first passage percolation processes $FPP_1$ and $FPP_{\lambda}$ that compete for the occupancy of sites. Initially, $FPP_1$ occupies the origin and spreads through the edges of $\mathbb{Z}^d$ at rate 1, while $FPP_{\lambda}$ is initialised at sites called \emph{seeds} that are distributed according to a product of Bernoulli measures of parameter $p\in(0,1)$, where a seed remains dormant until $FPP_1$ or $FPP_{\lambda}$ attempts to occupy it before then spreading through the edges of $\mathbb{Z}^d$ at rate $\lambda>0$. Particularly challenging aspects of FPPHE are its non-equilibrium dynamics and its lack of monotonicity (for instance, adding seeds could be benefitial to $FPP_1$ instead of $FPP_\lambda$); such characteristics, for example, prevent the application of a more standard multi-scale analysis. As a consequence of our main result for FPPHE, we establish a coexistence phase for the model for $d\geq3$, answering an open question in \cite{sidoravicius2019multi}. This exhibits a rare situation where a natural random competition model on $\mathbb{Z}^d$ observes coexistence for processes with \emph{different} speeds. Moreover, we are able to establish the stronger result that $FPP_1$ and $FPP_{\lambda}$ can both occupy a \emph{positive density} of sites with positive probability, which is in stark contrast with other competition processes.Comment: 48 pages, revised version with minor correction

Coexistence in competing first passage percolation with conversion

We introduce a two-type first passage percolation competition model on infinite connected graphs as follows. Type 1 spreads through the edges of the graph at rate 1 from a single distinguished site, while all other sites are initially vacant. Once a site is occupied by type 1, it converts to type 2 at rate ρ &gt;0. Sites occupied by type 2 then spread at rate λ&gt;0 through vacant sites and sites occupied by type 1, whereas type 1 can only spread through vacant sites. If the set of sites occupied by type 1 is nonempty at all times, we say type 1 survives. In the case of a regular d-ary tree for d ≥ 3, we show type 1 can survive when it is slower than type 2, provided ρ is small enough. This is in contrast to when the underlying graph is Zd , where for any ρ &gt;0, type 1 dies out almost surely if λ &gt; λ ' for some λ ' &lt; 1.</p

Percolation transition and dissipation in quantum Ising magnets

We study the effects of dissipation on a randomly diluted transverse-field Ising magnet close to the percolation threshold. For weak transverse fields, a novel percolation quantum phase transition separates a superparamagnetic cluster phase from an inhomogeneously ordered ferromagnetic phase. The properties of this transition are dominated by large frozen and slowly fluctuating percolation clusters. This leads to a discontinuous magnetization-field curve and exotic hysteresis phenomena as well as highly singular behavior of magnetic susceptibility and specific heat. We compare our results to the smeared transition in generic dissipative random quantum Ising magnets. We also discuss the relation to metallic quantum magnets and other experimental realizations.Comment: 4 pages, 2 eps figures, final version as publishe

Structural Properties of Two-Dimensional Polymers

We present structural properties of two-dimensional polymers as far as they can be described by percolation theory. The percolation threshold, critical exponents and fractal dimensions of clusters are determined by computer simulation and compared to the results of percolation theory. We also describe the dependence of the typical cluster structures on the reaction rate.Comment: 7 pages, LaTeX with RevTeX and epsf styles and PostScript figures included (uuencoded shell archive), TVP-93051

Dissipation effects in percolating quantum Ising magnets

We study the effects of dissipation on a randomly dilute transverse-field Ising magnet at and close to the percolation threshold. For weak transverse fields, a novel percolation quantum phase transition separates a super-paramagnetic cluster phase from an inhomogeneously ordered ferromagnetic phase. The properties of this transition are dominated by large frozen and slowly fluctuating percolation clusters. Implementing numerically a strong-disorder real space renormalization group technique, we compute the low-energy density of states which is found to be in good agreement with the analytical prediction.Comment: 2 pages, 1 eps figure, final version as publishe

Absorbing-state phase transitions on percolating lattices

We study nonequilibrium phase transitions of reaction-diffusion systems defined on randomly diluted lattices, focusing on the transition across the lattice percolation threshold. To develop a theory for this transition, we combine classical percolation theory with the properties of the supercritical nonequilibrium system on a finite-size cluster. In the case of the contact process, the interplay between geometric criticality due to percolation and dynamical fluctuations of the nonequilibrium system leads to a new universality class. The critical point is characterized by ultraslow activated dynamical scaling and accompanied by strong Griffiths singularities. To confirm the universality of this exotic scaling scenario we also study the generalized contact process with several (symmetric) absorbing states, and we support our theory by extensive Monte-Carlo simulations.Comment: 11 pages, 10 eps figures included, final version as publishe

Percolation transition in quantum Ising and rotor models with sub-Ohmic dissipation

We investigate the influence of sub-Ohmic dissipation on randomly diluted quantum Ising and rotor models. The dissipation causes the quantum dynamics of sufficiently large percolation clusters to freeze completely. As a result, the zero-temperature quantum phase transition across the lattice percolation threshold separates an unusual super-paramagnetic cluster phase from an inhomogeneous ferromagnetic phase. We determine the low-temperature thermodynamic behavior in both phases which is dominated by large frozen and slowly fluctuating percolation clusters. We relate our results to the smeared transition scenario for disordered quantum phase transitions, and we compare the cases of sub-Ohmic, Ohmic, and super-Ohmic dissipation.Comment: 9 pages, 2 figure