Related papers: Modelling Information Flows in Financial Markets
We present two models for incorporating the total effect of market microstructure noise into dynamic pricing of assets and European options. The first model is developed under a Black-Scholes-Merton, continuous-time framework. The second…
We discuss the role of information entropy on the behaviour of random processes, and how this might take effect in the dynamics of financial market prices. We then go on to show how the Open Quantum Systems approach can be used as a more…
In financial markets valuable information is rarely circulated homogeneously, because of time required for information to spread. However, advances in communication technology means that the 'lifetime' of important information is typically…
We define and study a rather complex market model, inspired from the Santa Fe artificial market and the Minority Game. Agents have different strategies among which they can choose, according to their relative profitability, with the…
We develop a behavioral asset pricing model in which agents trade in a market with information friction. Profit-maximizing agents switch between trading strategies in response to dynamic market conditions. Due to noisy private information…
We introduce a simple model for addressing the controversy in the study of financial systems, sometimes taken as brownian-like processes and other as critical systems with fluctuations of arbitrary magnitude. The model considers a…
We use standard physics techniques to model trading and price formation in a market under the assumption that order arrival and cancellations are Poisson random processes. This model makes testable predictions for the most basic properties…
This paper proposes a theory of stock market predictability patterns based on a model of heterogeneous beliefs. In a discrete finite time framework, some agents receive news about an asset's fundamental value through a noisy signal. The…
We consider the computation of model-free bounds for multi-asset options in a setting that combines dependence uncertainty with additional information on the dependence structure. More specifically, we consider the setting where the…
This paper studies the switching of trading strategies and its effect on the market volatility in a continuous double auction market. We describe the behavior when some uninformed agents, who we call switchers, decide whether or not to pay…
This work presents an asset pricing model that under rational expectation equilibrium perspective shows how, depending on risk aversion and noise volatility, a risky-asset has one equilibrium price that differs in term of efficiency: an…
In this paper we extend the series of our studies on the properties of an interacting particle model for market microstructure. In our earlier work we defined a Markov process on the majority opinion of the agents, obtained the transition…
We investigate a pricing rule that is applicable for streams of income or contingent claim liabilities and study how this rule changes under additional insider-type information that an investor might obtain. Considering a model where the…
We study strategic interactions in a broker-mediated market in which agents learn and exploit each other's private information. A broker provides liquidity to an informed trader and to noise traders while managing inventory in a lit market.…
This paper presents a unified multi-asset, multi-group asset-flow model that integrates three foundational frameworks from the behavioral finance literature. The model captures the dynamics of financial markets where multiple assets are…
The issue of giving an explicit description of the flow of information concerning the time of bankruptcy of a company (or a state) arriving on the market is tackled by defining a bridge process starting from zero and conditioned to be equal…
We present a simple agent-based model to study the development of a bubble and the consequential crash and investigate how their proximate triggering factor might relate to their fundamental mechanism, and vice versa. Our agents invest…
We introduce a minimal Agent Based Model for financial markets to understand the nature and Self-Organization of the Stylized Facts. The model is minimal in the sense that we try to identify the essential ingredients to reproduce the main…
We study optimal investment in an asset subject to risk of default for investors that rely on different levels of information. The price dynamics can include noises both from a Wiener process and a Poisson random measure with infinite…
This paper presents a new prediction model for time series data by integrating a time-varying Geometric Brownian Motion model with a pricing mechanism used in financial engineering. Typical time series models such as Auto-Regressive…