The measured correlations of financial time series in subsequent epochs change considerably as a function of time. When studying the whole correlation matrices, quasi-stationary patterns, referred to as market states, are seen by applying clustering methods. They emerge, disappear or reemerge, but they are dominated by the collective motion of all stocks. In the jargon, one speaks of the market motion, it is always associated with the largest eigenvalue of the correlation matrices. Thus the question arises, if one can extract more refined information on the system by subtracting the dominating market motion in a proper way. To this end we introduce a new approach by clustering reduced-rank correlation matrices which are obtained by subtracting the dyadic matrix belonging to the largest eigenvalue from the standard correlation matrices. We analyze daily data of 262 companies of the S&P 500 index over a period of almost 15 years from 2002 to 2016. The resulting dynamics is remarkably different, and the corresponding market states are quasi-stationary over a long period of time. Our approach adds to the attempts to separate endogenous from exogenous effects.
In many complex systems representable as networks, nodes can be separated into different classes. Often these classes can be linked to a mutually shared vulnerability. Shared vulnerabilities may be due to a shared eavesdropper or correlated failures. In this paper, we show the impact of shared vulnerabilities on robust connectivity and how the heterogeneity of node classes can be exploited to maintain functionality by utilizing multiple paths. Percolation is the field of statistical physics that is generally used to analyze connectivity in complex networks, but in its existing forms, it cannot treat the heterogeneity of multiple vulnerable classes. To analyze the connectivity under these constraints, we describe each class as a color and develop a "color-avoiding" percolation. We present an analytic theory for random networks and a numerical algorithm for all networks, with which we can determine which nodes are color-avoiding connected and whether the maximal set percolates in the system. We find that the interaction of topology and color distribution implies a rich critical behavior, with critical values and critical exponents depending both on the topology and on the color distribution. Applying our physics-based theory to the Internet, we show how color-avoiding percolation can be used as the basis for new topologically aware secure communication protocols. Beyond applications to cybersecurity, our framework reveals a new layer of hidden structure in a wide range of natural and technological systems.
The average economic agent is often used to model the dynamics of simple markets, based on the assumption that the dynamics of many agents can be averaged over in time and space. A popular idea that is based on this seemingly intuitive notion is to dampen electric power fluctuations from fluctuating sources (as e.g. wind or solar) via a market mechanism, namely by variable power prices that adapt demand to supply. The standard model of an average economic agent predicts that fluctuations are reduced by such an adaptive pricing mechanism.However, the underlying assumption that the actions of all agents average out on the time axis is not always true in a market of many agents. We numerically study an econophysics agent model of an adaptive power market that does not assume averaging a priori. We find that when agents are exposed to source noise via correlated price fluctuations (as adaptive pricing schemes suggest), the market may amplify those fluctuations. In particular, small price changes may translate to large load fluctuations through catastrophic consumer synchronization. As a result, an adaptive power market may cause the opposite effect than intended: Power fluctuations are not dampened but amplified instead.
Many real world networks have groups of similar nodes which are vulnerable to the same failure or adversary. Nodes can be colored in such a way that colors encode the shared vulnerabilities. Using multiple paths to avoid these vulnerabilities can greatly improve network robustness, if such paths exist. Color-avoiding percolation provides a theoretical framework for analyzing this scenario, focusing on the maximal set of nodes which can be connected via multiple color-avoiding paths. In this paper we extend the basic theory of color-avoiding percolation that was published in S. M. Krause et al. [Phys. Rev. X 6, 041022 (2016)]2160-330810.1103/PhysRevX.6.041022. We explicitly account for the fact that the same particular link can be part of different paths avoiding different colors. This fact was previously accounted for with a heuristic approximation. Here we propose a better method for solving this problem which is substantially more accurate for many avoided colors. Further, we formulate our method with differentiated node functions, either as senders and receivers, or as transmitters. In both functions, nodes can be explicitly trusted or avoided. With only one avoided color we obtain standard percolation. Avoiding additional colors one by one, we can understand the critical behavior of color-avoiding percolation. For unequal color frequencies, we find that the colors with the largest frequencies control the critical threshold and exponent. Colors of small frequencies have only a minor influence on color-avoiding connectivity, thus allowing for approximations.
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