# Giulia IoriCity, University of London · Department of Economics

Giulia Iori

PhD Physics

## About

89

Publications

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## Publications

Publications (89)

We study how the effectiveness of macroprudential capital buffers conditional to the systemic-risk assessment of banks responds to the degree of heterogeneity of the financial system. A multi-agent model is employed to build an artificial economy with households, firms, and banks where occasional liquidity crises emerge. The systemic importance of...

In this review we discuss advances in the agent-based modeling of economic and social systems. We show the state of the art of the heuristic design of agents and how behavioral economics and laboratory experiments have improved the modeling of agent behavior. We further discuss how economic networks and social systems can be modeled and we discuss...

We propose a multi-agent approach to compare the effectiveness of macroprudential capital requirements, where banks are embedded in an artificial macroeconomy. Capital requirements are derived from alternative systemic risk metrics that reflect both the vulnerability and impact of financial institutions. Our objective is to explore how systemic ris...

To date, macroprudential policy inspired by the Basel III package is applied irrespective of the network characteristics of the banking system. We study how the implementation of macroprudential policy in the form of additional capital requirements conditional to systemic-risk measures of banks should regard the degree of heterogeneity of financial...

We present a study of the European electronic interbank market of overnight lending (e-MID) before and after the beginning of the financial crisis. The main goal of the paper is to explain the structural changes of lending/borrowing features due to the liquidity turmoil. Unlike previous contributions that focused on banks' dependent and macro infor...

We propose a multi-agent approach to compare the effectiveness of macroprudential capital requirements, where banks are embedded in an artificial macroeconomy. Capital requirements are derived from alternative systemic-risk metrics that reflect both the vulnerability or impact of financial institutions. Our objective is to explore how systemic-risk...

We develop a macroeconomic agent-based model that consists of firms, banks, unions and households who interact on labour, goods, credit and interbank markets. The model endogenises pricing decisions by firms, wage setting by unions and interest rate setting by banks on both firm and interbank lending. Banks also set leverage targets and precautiona...

This chapter discusses a step in the evolution of agent-based model (ABM) research in finance. Agent-based modeling has concentrated on the development of stylized market models, which have been extremely useful for understanding how complex macro-scale phenomena emerge from micro-rules. In order to further develop ABMs from proof of concept into r...

The aim of this chapter is to review the literature on credit market models by emphasizing the mechanisms able to generate financial crises and contagion. From the theoretical microeconomic literature up to network theory and agent-based methodologies, we illustrate how these different approaches investigate the (in)stability of financial systems....

This paper empirically investigates the role of banks’ network centrality in the interbank market on their funding rates. Specifically we analyze transaction data from the e-MID market, the only electronic interbank market in the Euro Area and US, over the period 2006-2009 that encompasses the global financial crisis. We show that interbank spreads...

This paper empirically explores the effect of bank lending relationships in the interbank market. We use data from the e-MID market that represents the only transparent electronic platform in Europe and USA, unaffected by search costs and other fictions. We show that stable relationships exist and that they played a significant role during the 2007...

We present an empirical analysis of the European electronic interbank market of overnight lending e-MID during the years 1999-2009. After introducing the market mechanism, we consider the activity, defined as the number of trades per day; the spreads, defined as the difference between the rate of a transaction and the key rates of the European Cent...

This paper studies the relationship between bank characteristics, such as size, nationality, operating currency and sovereign debt in the parent country, and the distribution of funding spreads observed in the e-MID interbank money market during the Great financial crisis. Our setup is a pseudo-panel with a random number of international banks acti...

In November 2011 an EU FP7 interdisciplinary collaborative project Complexity Research Initiative for Systemic InstabilitieS (CRISIS) started to develop a complexity interactions agent-based model for the European financial-economic crisis. This special issue on Crises and Complexity reflects some of the ongoing work of this interdisciplinary colla...

This chapter investigates the interrelation between pre-trade quote transparency and stylised properties of order-driven markets populated by traders with heterogeneous beliefs. In a modified version of Chiarella et al. (2009) model we address the ability of the artificial stock market to replicate the empirical phenomena detected in financial mark...

We present a new agent-based model focusing on the linkage between the interbank market and the real economy with a stylised central bank acting as lender of last resort. Using this model we address the tradeoff between stability and economic performance for different structures of the interbank market. We also explore the efficacy of recent regula...

Interbank markets are fundamental for bank liquidity management. In this
paper, we introduce a model of interbank trading with memory. Our model
reproduces features of preferential trading patterns in the e-MID market
recently empirically observed through the method of statistically validated
networks. The memory mechanism is used to introduce a pr...

This paper studies the effects of pre-trade quote transparency on spread, price discovery and liquidity in an artificial limit order market with heterogeneous trading rules. Our agent-based numerical experiments suggest that full quote transparency incurs substantial transaction costs to traders and dampens trading activity in an order-driven marke...

We present an empirical analysis of the European electronic interbank market of overnight lending (e-MID) during the years 1999-2009. The main goal of the paper is to explain the observed changes of the cross-sectional dispersion of lending/borrowing conditions before, during and after the 2007-2008 subprime crisis. Unlike previous contributions, t...

Interbank markets allow credit institutions to exchange capital for purposes of liquidity management. These markets are among the most liquid markets in the financial system. However, liquidity of interbank markets dropped during the 2007-2008 financial crisis, and such a lack of liquidity influenced the entire economic system. In this paper, we an...

We introduce an order driver market model with heterogeneous traders that imitate each other
on a dynamic network structure. The communication structure evolves endogenously via a
fitness mechanism based on agents performance. We assess under which assumptions imitation,
among noise traders, can give rise to the emergence of gurus and their rise...

We use a self-averaging measure called Kullback-Leibler divergence to evaluate the performance of four different correlation estimators: Fourier, Pearson, Maximum Likelihood and Hayashi-Yoshida estimator. The study uses simulated transaction prices for a large number of stocks and different data generating mechanisms, including synchronous and non-...

In this paper we develop an order driver market model with heterogeneous traders that imitate each other on different network
structures. We assess how imitations among otherway noise traders, can give rise to well known stylized facts such as fat
tails and volatility clustering. We examine the impact of communication and imitation on the statistic...

In this paper we develop a model of an order-driven market where traders set bids and asks and post market or limit orders according to exogenously fixed rules. Agents are assumed to have three components of the expectation of future asset returns, namely fundamentalist, chartist and noise trader. Furthermore agents differ in the characteristics de...

In well networked communities, information is often shared informally among an individual’s direct
and indirect acquaintances. Here we study a modified version of a model previously proposed
by Jackson and Wolinsky to account for communicating information and allocating goods in socioeconomic
networks. The model defines a utility function of node i...

This paper compares the so-called gross and net architectures for securities settlement. It studies the settlement risk arising from exogenous operational delays and compares the importance of settlement failures under the two architectures, as a function of the length of the settlement cycle and of different market conditions. Under both architect...

This paper investigates the effect of hedging strategies on the so-called pinning effect, i.e. the tendency of stock's prices to close near the strike price of heavily traded options as the expiration date nears. In the paper we extend the analysis of Avellaneda and Lipkin, who propose an explanation of stock pinning in terms of delta hedging strat...

We review applications, published in three separate papers, of a recently proposed method to estimate volatility and correlation when prices are observed at a high frequency rate. The method is based on Fourier analysis and does not require any data manipulation, leading to less noisy estimates than the traditional methodologies proposed so far.

We use the theory of complex networks in order to quantitatively characterize the structure of reciprocal expositions of Italian banks in the interbank money market market. We observe two main different strategies of banks: small banks tend to be the lender of the system, while large banks are borrowers. We propose a model to reproduce the main sta...

In this paper we implement a Fourier method to estimate high-frequency correlation matrices from small data sets. The Fourier estimates are shown to be considerably less noisy than the standard Pearson correlation measures and thus capable of detecting subtle changes in correlation matrices with just a month of data. The evolution of correlation at...

On a high-frequency scale the time series are not homogeneous, therefore standard correlation measures cannot be directly applied to the raw data. To deal with this problem the time series have to be either homogenized through interpolation, or methods that can handle raw non-synchronous time series need to be employed. This paper compares two trad...

We use the theory of complex networks in order to quantitatively characterize the formation of communities in a particular financial market. The system is composed by different banks exchanging on a daily basis loans and debts of liquidity. Through topological analysis and by means of a model of network growth we can determine the formation of diff...

Using a data set which includes all transactions among banks in the Italian money market, we study their trading strategies and the dependence among them. We use the Fourier method to compute the variance–covariance matrix of trading strategies. Our results indicate that well defined patterns arise. Two main communities of banks, which can be coars...

Most modern financial markets use a continuous double auction mecha- nism to store and match orders and facilitate trading. In this chapter we use a microscopic dynamical statistical model for the continuous double auction under the assumption of IID random order flow. The analysis is based on simulation, dimensional analysis, and theoretical tools...

This paper uses data-rich estimation techniques to study monetary policy in an open economy. We apply the techniques to a small, forward-looking model and explore the importance of the exchange rate in the monetary policy rule. This approach allows us to discern whether a monetary authority targets the exchange rate per se, or instead simply respon...

The objective of this paper is to analyse the network topology of the Italian segment of the European overnight money market through methods of statistical mechanics applied to complex networks. We investigate differences in the activities of banks of different sizes and the evolution of their connectivity structure over the maintenance period. The...

In this paper we develop a model of an order-driven market where traders set bids and asks and post market or limit orders according to exogenously fixed rules. The model seeks to capture a number of features suggested by recent empirical analysis of limit order data, such as; fat-tailed distribution of limit order placement from current bid/ask; f...

In this paper we extend the analysis of the italian segment of the European money market in two ways. First we investigate differences in the activities of banks of different size. Secondly we extend the analysis to the structure of the connections among banks and it's change over time. As recent studies on general complex networks have shown the t...

This paper compares securities settlement gross and netting architectures. It studies settlement risk arising from exogenous operational delays and compares settlement failures between the two architectures as functions of the length of the settlement interval under different market conditions. While settlement failures are non-monotonically relate...

We simulate interbank lending. Each bank faces fluctuations in liquid assets and stochastic investment opportunities that mature with delay, creating the risk of liquidity shortages. An interbank market lets participants pool this risk but also creates the potential for one bank’s crisis to propagate through the system. We study banking systems wit...

We simulate interbank lending. Each bank faces fluctuations in liquid assets and stochastic investment opportunities which mature with delay. This creates the risk of liquidity shortages. An interbank market lets participants pool this risk but also creates the potential for one bank's crisis to propagate through the system. We study banking system...

On a high-frequency scale the time series are not homogeneous, therefore standard correlation measures can not be directly applied to the raw data. There are two ways to deal with this problem. The time series can be homogenised through an interpolation method \cite{Dacorogna} (linear or previous tick) and then the Pearson correlation statistic com...

We simulate interbank lending. Each bank faces fluctuations in deposits and stochastic investment opportunities which mature with delay. This creates the risk of liquidity shortages. An interbank market lets participants pool this risk but also creates the potential for one bank's crisis to propagate through the system. We study banking systems wit...

We introduce a microscopic model of double-auction markets based on random order place-ment. Traders post market or limit orders which are stored in the book of the exchange and executed via a central order matching mechanism. We use dimensional analysis, simulations and analytical approximations to make testable predictions of the price impact fun...

We model trading and price formation in a market under the assumption that order arrival and cancellations are Poisson random processes. This model makes testable predictions for the most basic properties of markets, such as the diffusion rate of prices (which is the standard measure of financial risk) and the spread and price impact functions (whi...

We introduce an order-driven market model with heterogeneous agents trading via a central order matching mechanism. Traders set bids and asks and post market or limit orders according to exogenously fixed rules. We investigate how different trading strategies may affect the dynamics of price, bid-ask spreads, trading volume and volatility. We also...

We propose a phenomenological model of fingering dynamics in the presence of an external drift, motivated by recent experiments on quasi-two-dimensional electrodeposition with hydrodynamic convection. We study the dynamical transition between a Laplacian growth regime and a weak finger competition regime. The model proposed defines a wavelength-sel...

The limit order book is a device for storing demand and effecting trades that is the primary mechanism for price formation in most modern financial markets. We study the limit order book under a random process model of order flow, using simulations and an analytic treatment based on a master equation. We make testable predictions of the price diffu...

An interbank market lets participants pool the risk arising from the combination of illiquid investments and random withdrawals by depositors. But it also creates the potential for one bank's failure to trigger off avalanches of further failures. We simulate a model of interbank lending to study the interplay of these two effects. We show that when...

We simulate a model of an interbank market. Each bank faces fluctuations in deposits and a stochastic investment opportunity each period. Invested funds mature with delay. The risk arises of failure due to insufficient liquidity. An interbank market lets participants pool this risk but also creates the potential for one bank's failure to lead to an...

This paper reviews some of the phenomenological models which have been
introduced to incorporate the scaling properties of financial data. It
also illustrates a microscopic model, based on heterogeneous interacting
agents, which provides a possible explanation for the complex dynamics
of market returns. Scaling and multiscaling analysis performed o...

We study the consumption behaviour of an asymmetric network of heterogeneous agents in the framework of discrete choice models with stochastic decision rules. We assume that the interactions among agents are uniquely specified by their ``social distance'' and consumption is driven by peering, distinction and aspiration effects. The utility of each...

We propose a phenomenological model to describe the dynamics of fingering patterns recently observed in quasi-twodimensional electrodeposition experiments. The effects of hydrodynamic convection are introduced through an effective drift. We study the role of the new length scale in the crossover between a Laplacian growth regime and a weak competit...

The temporal evolution of a water–sand interface driven by gravity is experimentally investigated. By means of a Fourier analysis of the evolving interface the growth rates are determined for the different modes appearing in the developing front. To model the observed behavior we apply the idea of the Rayleigh–Taylor instability for two stratified...

A common feature of many aggregate variables in economics and finance is that they exhibit oscillatory behaviour, showing boom-and-bust patterns. Examples are fad and bandwagon behaviour in sociology, business cycles in economics, bubbles in stock market prices, wave behaviour in the adoption of innovation technology.We study consumption behaviour...

This paper reviews some of the phenomenological models which have been introduced to incorporate the scaling properties of financial data. It also illustrates a microscopic model, based on heterogeneous interacting agents, which provides a possible explanation for the complex dynamics of markets' returns. Scaling and multi-scaling analysis performe...

We study consumption behaviour in systems with heterogeneous interacting agents. Two different models are introduced, respectively with long and short range interactions among agents. At any time step an agent decides whether or not to consume a good, doing so if this provides positive utility. Utility is affected by idiosyncratic preferences and c...

We propose a model with heterogeneous interacting traders which can explain some of the stylized facts of stock market returns. A generalized version of the Random Field Ising Model (RFIM) is introduced to describe trading behavior. Imitation effects, which induce agents to trade, can generate avalanches in trading volume and large gaps in demand a...

We present a numerical study of the zero-temperature random field Ising model, focusing on the influence that a finite rate driving has on hysteresis and avalanches. In the limit of quasistatic driving the model is known to display a disorder-induced continuous transition between a regime of smooth hysteresis cycles, displaying only finite size ava...

We present a theory of option pricing and hedging, designed to address non-perfect arbitrage, market friction and the presence of `fat' tails. An implied volatility `smile' is predicted. We give precise estimates of the residual risk associated with optimal (but imperfect) hedging. Accepted for publication in Risk Magazine (December 1995). 1 Introd...

We propose a model with heterogeneous interacting traders which can explain some of the stylized facts of stock market returns. In the model, synchronization effects, which generate large fluctuations in returns, can arise purely from communication and imitation among traders. The key element in the model is the introduction of a trade friction whi...

The authors investigate by Monte Carlo simulations the thermodynamic behaviour of a linear heteropolymer in which the interaction between different monomers contains a quenched random component. They show the existence, along with the usual coil and globule phases, of a new folded phase, characterized by long relaxation times and by the existence o...

The kinetics of an initially undercooled solid-liquid melt is studied by means of a generalized Phase Field model, which describes the dynamics of an ordering non-conserved field phi (e.g. solid-liquid order parameter) coupled to a conserved field (e.g. thermal field). After obtaining the rules governing the evolution process, by means of analytica...

We study the dynamics of the SK model modified by a small nonhamiltonian perturbation. We study aging, and we find that on the time scales investigated by our numerical simulations it survives a small perturbation (and is destroyed by a large one). If we assume we are observing a transient behavior the scaling of correlation times versus the asymme...

We study the dynamics of the SK model modified by a small non-hamiltonian perturbation. We study aging, and we find that on the time scales investigated by our numerical simulations it survives a small perturbation (and is destroyed by a large one). If we assume we are observing a transient behavior the scaling of correlation times versus the asymm...

We discuss a model of protein folding, the IMP model of a random heteropolymer. We discuss the thermodynamic behavior of a linear heteropolymer in which the interaction between different monomers contains a quenched random component. We show the existence, along with the usual coil and globule phases, of a new folded phase, characterized by long re...

We present a brief review of the main analitical and experimental results on the problem of protein folding. We will then discuss the conformational properties of the IMP model for an heteropolymeric chain at low and zero temperature. Finally we will analize the dynamical relaxation of this system after the action of an external perturbation. 1 1 I...

We investigate by Monte Carlo simulation the termodynamic behavior of a linear heteropolymer in which the interaction between different monomers contains a quenched random component. We show the existence, along with the usual coil and globule ones, of a new phase, the folded phase, characterised by long relaxation times and by the existence of few...

A disorder-dependent Gaussian variational approach is applied to the $d$-dimensional ferromagnetic XY model in a random field. The randomness yields a non extensive contribution to the variational free energy, implying a random mass term in correlation functions. The Imry-Ma low temperature result, concerning the existence ($d>4$) or absence ($d <...

We present a theory of option pricing and hedging, designed to address non-perfect arbitrage, market friction and the presence of ‘fat ’ tails. An implied volatility ‘smile ’ is predicted. We give precise estimates of the residual risk associated with optimal (but imperfect) hedging. In 1973, Black and Scholes [1] developed the mathematical theory...

The European Physical Society (EPS) is a not for profit association whose members include 41 National Physical Societies in Europe, individuals from all fields of physics, and European research institutions.
As a learned society, the EPS engages in activities that strengthen ties among the physicists in Europe. As a federation of National Physical...

We investigate by Monte Carlo simulation the thermodynamic behavior of a linear heteropolymer in which the interaction between different monomers contains a quenched random component. We show the existence, along with the usual coil and globule ones, of a new phase, the folded phase, characterized by long relaxation times and by the existence of fe...

We present a brief review of the main analitical and experimentalresults on the problem of protein folding. We will then discuss the conformationalproperties of the IMP model for an heteropolymeric chainat low and zero temperature. Finally we will analize the dynamicalrelaxation of this system after the action of an external perturbation.11 Introdu...

Sensory stimulation at certain frequencies was shown to elicit EEG and MEG (MagnetoEncephaloGraphic) responses persisting longer than one second after the stimulation. Such responses have been described as a consequence of a process of synchronization of bioelectrical spontaneous activities in the brain with a specific frequency content, but otherw...

(Dated: January 29, 2002) The limit order book is a device for storing supply and demand in nancial markets, somewhat like a capacitor is a device for storing charge. We develop a microscopic statistical model of the limit order book under random order o w, using simulation, dimensional analysis, and an analytic treatment based on a master equation...

## Projects

Projects (3)

The purpose of the project is to extend my Ph.D. work, which led to the creation of a macroeconomic agent-based model with banks and an interbank market.
The focus is to exploit the model to:
Translate systemic-risk measures in macroprudential capital requirements and compare them.
Assess the effectiveness of additional capital surcharges when the banking system is more or less heterogeneous.