This chapter examines a new class of markets at the intersection of trad· itional betting and traditional financial markets. We call these 'prediction markets'. Like both financial and betting markets, prediction markets focus on uncertain outcomes and involve trading in risks. Prices from these markets establish forecasts about the probabilities, mean and median outcomes, and correlations amon...

the recent turmoil in global financial markets, associated with the u.S. subprime mortgage crisis, has raised important questions about the stability and integrity of the new international financial structure. these events represent the first real stress test of the world’s financial system since the late 1990s when the asian financial crisis, Russian debt default, and long-term capital Managem...

Market-makers have been used by global stock exchanges as well as prediction markets to maintain liquidity and orderly price transitions in the financial markets. We use an agent-based model of the financial markets to analyze the behavior of market-makers employing various strategies. We empirically evaluate the performance of the market-makers in the financial market to demonstrate the streng...

Systemic risk to financial markets is often defined as the risk of a major and rapid disruption in one or more of the core functions of the financial system caused by the initial failure of one or more financial firms or a segment of the financial system ([3], p. 3.) This widely accepted definition sets systemic risks in financial markets as a different class of risk agents in the market face, ...

The global financial crisis occurred in 2008 and its contagion to other regions, as well as the long-lasting impact on different markets, show that it is increasingly important to understand the complicated coupling relationships across financial markets. This is indeed very difficult as complex hidden coupling relationships exist between different financial markets in various countries, which ...

In most financial markets, securities are traded in isolation. Such a disconnected market design can be inefficient if agents trade more than one security. I assess welfare effects of connecting markets by allowing orders for security to depend on prices other securities. show that everyone trades identical amounts under both structures and only the clearing perfectly correlated or all price-ta...