Related papers: A note on wealth in a volatile economy
In this paper, the Kyle model of insider trading is extended by characterizing the trading volume with long memory and allowing the noise trading volatility to follow a general stochastic process. Under this newly revised model, the…
The use of factor stochastic volatility models requires choosing the number of latent factors used to describe the dynamics of the financial returns process; however, empirical evidence suggests that the number and makeup of pertinent…
The conservative wealth-exchange process derived from trade interactions is modeled as a multiplicative stochastic transference of value, where each interaction multiplies the wealth of the poorest of the two intervening agents by a random…
Understanding the evolutionary stability of cooperation is a central problem in biology, sociology, and economics. There exist only a few known mechanisms that guarantee the existence of cooperation and its robustness to cheating. Here, we…
We construct an equilibrium for the continuous time Kyle's model with stochastic liquidity, a general distribution of the fundamental price, and correlated stock and volatility dynamics. For distributions with positive support, our…
We consider a tick-by-tick model of price formation, in which buy and sell orders are modeled as self-exciting point processes (Hawkes process), similar to the one in [Bacry, Delattre, Hoffmann, Muzy, Modelling microstructure noise with…
The value of an asset in a financial market is given in terms of another asset known as numeraire. The dynamics of the value is non-stationary and hence, to quantify the relationships between different assets, one requires convenient…
We consider a dynamic portfolio optimization problem that incorporates predictable returns, instantaneous transaction costs, price impact, and stochastic volatility, extending the classical results of Garleanu and Pedersen (2013), which…
We consider a stochastic volatility asset price model in which the volatility is the absolute value of a continuous Gaussian process with arbitrary prescribed mean and covariance. By exhibiting a Karhunen-Lo\`{e}ve expansion for the…
We study the dependence of volatility on the stock price in the stochastic volatility framework on the example of the Heston model. To be more specific, we consider the conditional expectation of variance (square of volatility) under fixed…
We consider a continuous-time game-theoretic model of an investment market with short-lived assets and endogenous asset prices. The first goal of the paper is to formulate a stochastic equation which determines wealth processes of investors…
Earlier we proposed the stochastic point process model, which reproduces a variety of self-affine time series exhibiting power spectral density S(f) scaling as power of the frequency f and derived a stochastic differential equation with the…
What is the dominating mechanism of the price dynamics in financial systems is of great interest to scientists. The problem whether and how volatilities affect the price movement draws much attention. Although many efforts have been made,…
We prove that a wide class of correlated stochastic volatility models exactly measure an empirical fact in which past returns are anticorrelated with future volatilities: the so-called ``leverage effect''. This quantitative measure allows…
We adress the maximization problem of expected utility from terminal wealth. The special feature of this paper is that we consider a financial market where the price process of risky assets can have a default time. Using dynamic…
A representation of economic activity in the form of a law of conservation of value is presented based on the definition of value as potential to act in an environment. This allows the encapsulation of the term as a conserved quantity…
This paper considers the problem of consumption and investment in a financial market within a continuous time stochastic economy. The investor exhibits a change in the discount rate. The investment opportunities are a stock and a riskless…
In retrospect, the experimental findings on competitive market behavior called for a revival of the old, classical, view of competition as a collective higgling and bargaining process (as opposed to price-taking behaviors) founded on…
A dynamical model of capital exchange is introduced in which a specified amount of capital is exchanged between two individuals when they meet. The resulting time dependent wealth distributions are determined for a variety of exchange…
This paper studies a continuous-time market {under stochastic environment} where an agent, having specified an investment horizon and a target terminal mean return, seeks to minimize the variance of the return with multiple stocks and a…