RESEARCH · GLOBAL
Market Makers and Risk Aversion: Hamiltonian Approach to Excess Volatility Puzzle
This research models financial market chaotic dynamics by treating market prices and market makers' inventory as anharmonic oscillators with nonlinear coupling. It proposes that market makers' risk appetite is key to understanding 'excess volatility,' suggesting that chaotic price changes can arise intrinsically without external shocks.
WHY IT MATTERS
Understanding the intrinsic drivers of market volatility helps risk officers and quantitative analysts build more accurate predictive models and develop robust hedging strategies.
Source: arXiv · 2026-05-18