Eroding market stability by proliferation of financial instruments

@article{Caccioli2008ErodingMS,
  title={Eroding market stability by proliferation of financial instruments},
  author={Fabio Caccioli and Matteo Marsili and Pierpaolo Vivo},
  journal={The European Physical Journal B},
  year={2008},
  volume={71},
  pages={467-479}
}
We contrast Arbitrage Pricing Theory (APT), the theoretical basis for the development of financial instruments, with a dynamical picture of an interacting market, in a simple setting. The proliferation of financial instruments apparently provides more means for risk diversification, making the market more efficient and complete. In the simple market of interacting traders discussed here, the proliferation of financial instruments erodes systemic stability and it drives the market to a critical… 
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