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About Prognoz
Leading Russian developers of Business Intelligence
and Performance Management systems
• international company that has
been working in the IT market
since 1991
• joint team of over 1 200 skilled
economists, programmers,
analysts
• 50% market of BI in Russia
• Prognoz Platform, 1-st Russian
platform in Magic Quadrant of
Gartner
About MMP cluster
MMP cluster architecture
Historical bubbles
Definition of financial bubbles
Evolution of bubble and risk management
Monitoring of financial bubbles
The system of bubble recognition
LPPL model
Fitting of the model
Models selection
Financial bubble experiment
Market microstructure approach
Technical architecture
Financial bubbles
Theory of crashes
Practical approach
Science and experiment
3
CONTENTS
Financial engineering
(Stylized facts)
……………………………………….…................…
Liquidity of the financial market and
assets
……………………………………………………….…..
Agent-based modeling and simulation
……………………………………………………………
Market microstructure analysis
…………………………..………………………………
Bubble detection and diagnosis
……………………………………………………………
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Installation Site: Perm state university
Supercomputer type: Cluster
Number of nodes: 3
Number of Cores per node: 12
CPU type: Intel Xeon 5650 (2.66 GHz)
RAM per node: 64 Gb
OS: Windows Server 2003
Technical info:
Total: 48 services, 72 CPU, 228 Gb RAM
6
R is statistical and graphical
programming environment
Appeared in 1993 and designed by
Ross Ihaka and Robert Gentleman
R is a GNU project
R – a free implementation of the S
language
It runs on a variety of platforms
including Windows, Unix and MacOS
It contains advanced statistical
routines not yet available in other
packages
There is more than 4300
packages that allow to use
specialized statistical
techniques, graphical
devices, import/export
capabilities, reporting tools,
etc.
7
Database
Commands
Batch file R file
Batch file
Batch file
R file
R file
Task
Runner
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Thefreedictionary.com
Mr. Greenspan
Charles Kindleberger, MIT
Professor J.Barley Rosser, James Madison University
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Authors A.Johansen, O.Ledoit, D.Sornette (JLS)
First publication Large financial crashes (1997) Famous book Didier Sornette Why Stock Markets Crash (2004)
𝑡𝑐 - critical time when bubble crash or change to another regime
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𝑙𝑛 𝑝 𝑡 = 𝐴 + 𝐵(𝑡𝑐 − 𝑡)𝑚
𝑡𝑐
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𝐶(𝑡𝑐 − 𝑡)𝑚 𝑐𝑜𝑠 [𝜔 𝑙𝑜𝑔 𝑡𝑐 − 𝑡 − 𝜑]
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𝑙𝑛 𝑝 𝑡 = 𝐴 + 𝐵(𝑡𝑐 − 𝑡)𝑚+𝐶(𝑡𝑐 − 𝑡)𝑚 𝑐𝑜𝑠 [𝜔 𝑙𝑜𝑔 𝑡𝑐 − 𝑡 − 𝜑]
m = 0.3 m = 0.01
m = 0.9 m = 1.7
𝑙𝑛 𝑝 𝑡 = 𝐴 + 𝐵(𝑡𝑐 − 𝑡)𝑚+𝐶(𝑡𝑐 − 𝑡)𝑚 𝑐𝑜𝑠 [𝜔 𝑙𝑜𝑔 𝑡𝑐 − 𝑡 − 𝜑]
18
𝑙𝑛 [𝑝(𝑡)]
= 3 = 7
= 30 = 15
𝑙𝑛 𝑝 𝑡 = 𝐴 + 𝐵(𝑡𝑐 − 𝑡)𝑚+𝐶(𝑡𝑐 − 𝑡)𝑚 𝑐𝑜𝑠 [𝜔 𝑙𝑜𝑔 𝑡𝑐 − 𝑡 − 𝜑]
19
𝑡𝑐 − 𝑡
𝑡𝑐 − 𝑡
𝑡𝑐 − 𝑡 𝑡𝑐 − 𝑡
𝑡𝑐 − 𝑡
= 7 = 9.5
𝑙𝑛 𝑝 𝑡 = 𝐴 + 𝐵(𝑡𝑐 − 𝑡)𝑚+𝐶(𝑡𝑐 − 𝑡)𝑚 𝑐𝑜𝑠 [𝜔 𝑙𝑜𝑔 𝑡𝑐 − 𝑡 − 𝜑]
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For each log periodic curve we fixed:
𝑡0- start time of the bubble 𝑡𝑐 - critical time when bubble crash or change to another regime
𝑡𝑐1 𝑡𝑐2
Sample of 𝑡𝑐
First model
Second model
John von Neumann
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• Main filtration (0<m<1, B<0)
• Residuals stationarity tests (ADF test, Phillips–Perron test)
• Lomb spectral analysis
0 10 20 30 40
05
01
00
15
0
LOMB PERIODOGRAM
omega
P(o
me
ga
)
m
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Risk measure
Quantiles
Distribution of 𝑡𝑐
Sample of 𝑡𝑐
25 25
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D.Fantazzini, P.Geraskin,
Everything You Always Wanted to Know
about Log Periodic Power Laws for Bubble Modelling
but Were Afraid to Ask (2011)
• Bubble
• Anti - bubble
Type
• Long
• Short
Timeframe
• Large
• Small
Size
• Parameters
LPPL
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The Financial Crisis Observatory (FCO) is a scientific platform aimed at testing and
quantifying rigorously, in a systematic way and on a large scale the hypothesis that
financial markets exhibit a degree of inefficiency and a potential for predictability,
especially during regimes when bubbles develop. (http://www.er.ethz.ch/fco/index)
Testing two hypotheses:
• Hypothesis H1: financial (and other) bubbles can be diagnosed in real-time
before they end..
• Hypothesis H2: The termination of financial (and other) bubbles can be
bracketed using probabilistic forecasts, with a reliability better than chance
(which remains to be quantied).
D. Sornette, R. Woodard,
M. Fedorovsky,S. Reimann, H. Woodard, W.-X. Zhou
The Financial Bubble Experiment. First Results (2 November 2009 - 1 May 2010)
29
2 November 2009 – 1 May 2010 [http://www.er.ethz.ch/fco/FBE_report_May_2010]
2 of 4 bubbles detected by model were real bubbles
All of them changed their regimes
12 May 2010 – 1 November 2010 [http://www.er.ethz.ch/fco/fbe_Report_1Nov10_2]
5 of 7 bubbles detected by model were real bubbles
4 of 5 changed their regimes
12 November 2011 – 2 May 2011 [http://www.er.ethz.ch/fco/fbe_20110502_assets_3.pdf]
24 of 27 bubbles detected by model were real bubbles
17 of 24 changed there regime
NBER Working Group
30
Different types of filters at 3 time scales:
Hours scale (macro):
Absolute filter
Relative filter
Source: Guo-Hua Mu, Wei-Xing Zhou, Wei Chen and J´anos Kert´esz. Order flow dynamics around extreme price changes on an emerging stock market, 2010
Minutes scale (meso):
Filter of minute returns
Source: Armand Joulin, Augustin Lefevre, Daniel Grunberg, Jean-Philippe Bouchaud. Stock price jumps: news and volume play a minor role, 2010
Tick scale (micro):
NANEX filter
Source: Flash Crash Analysis Continuing Developments http://www.nanex.net/FlashCrashEquities/FlashCrashAnalysis_Equities.html
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pri
ce [r
ub
]
time [ticks]
1.775
1.785
1.795
1.805
1.815
1.825
1.835
1.845
1.855
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pri
ce, r
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time
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pri
ce [r
ub
]
time [ticks]
Within 1 second price rose 0.82 % for 16 ticks (61.2 ->61.7)
33
Stocks analyzed 29 blue chips
Period 01.04.2010-30.06.2010; 1.09.2010-12.10.2010
Trading days 82
Sample analyzed 20.2 mln. ticks
Trading time 11.30-18.40
Shocks found 369
IDENT UP DOWN ALL PMTL 15 36 51 MAGN 31 6 37 NOTK 18 18 36 OGKC 13 23 36 AFLT 9 25 34 RTKM 14 19 33 MGNT 4 16 20 NLMK 8 12 20 URKA 7 11 18 SIBN 6 10 16 RASP 7 8 15 MRKH 3 9 12 MSNG 5 7 12 CHMF 3 4 7 RU14TATN3006 3 3 6 HYDR 3 2 5 TRNFP 3 0 3 IUES 0 2 2 MTSI 1 1 2 SNGSP 2 0 2 ROSN 1 0 1 SNGS 1 0 1 FEES 0 0 0 GAZP 0 0 0 GMKN 0 0 0 LKOH 0 0 0 SBER03 0 0 0 SBERP03 0 0 0 VTBR 0 0 0 Average 5 7 13
Total 369 events (13 per stock) On average 1 shock/7 days per stock
We use a tick dynamics of prices for filtering (source: MICEX)
Statistics:
Science
Laboratory of financial modeling and risk
management - Prognoz Risk Lab
Мagistracy in finance and IT (Master in
Finance & IT) in Perm State National Research
University
mifit.ru
Perm Winter School is an annual conference
on modeling of financial markets and risk
management
permwinterschool.ru