The Bubble-Mathematics of Economy. – University of Copenhagen

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02 March 2016

The Bubble-Mathematics of Economy.

Main title: The Bubble-Mathematics of Economy.
Subtitle: Meetings between Econometrics, Finance and Microeconomics in Bubble Studies.

Laurs Randbøll Leth (1989) is B.Sc. and M.Sc. in Mathematics and Economics from Department of Mathematical Sciences, Science, University of Copenhagen. He has acquired research experience within economics and mathematical finance through a scientific assistant position at FRIC (Center for Financial Frictions). Furthermore, he has taught at the university level (teaching assistant) in a large variety of courses ranging from macroeconomics to advanced probability theory. Finally, he has held a job (risk management) in the private banking sector.

His PhD project attempts to formulate and use mathematical models to uncover the formal structure and dynamics of bubble-phenomena and bubble-theories in economics. To be more specific theproject attempts to join the macroeconomic perspective on bubble formation based on mathematical finance and econometric (time-varying stochastic) models, with the microeconomic perspective on bubble formation based on epistemic conditions for trade and arbitrage and thus methods drawn from epistemic logic, game and decision theory and possibly Bayesian models in order to detect:

1. reflections between the macroscopic level of the developmental trajectory and the microeconomic level of information exchanges and agent interaction

2. possible elements of social proof, cascading and herding behavior leading to the aggressive boom

and subsequent burst of financial bubbles

3. look for signs of early warning of bubble formation at the intersection of the macroeconomic characterization of the phases and the micro-economic characterization of the epistemic conditions for bubbles to arise

4. and possibly use these signs to improve trading/hedging strategies from the perspective of the private investor as well as financial institutions.

The project is supervised by Professor Peter Norman Sørensen (Department of Economics, Faculty of Social Sciences) and Professor Vincent F. Hendricks (Director of Center for Information and Bubble Studies). Furthermore, Professor Anders Rahbek (Department of Economics, Faculty of Social Sciences) is closely involved in the project.