Related papers: Modelling Information Flows in Financial Markets
Following a long tradition of physicists who have noticed that the Ising model provides a general background to build realistic models of social interactions, we study a model of financial price dynamics resulting from the collective…
We consider a financial market model which consists of a financial asset and a large number of interacting agents classified into many types. Different types of agents are heterogeneous in their price expectations. Each agent can change its…
Jumps and market microstructure noise are stylized features of high-frequency financial data. It is well known that they introduce bias in the estimation of volatility (including integrated and spot volatilities) of assets, and many methods…
This paper develops a model for the bid and ask prices of a European type asset by formulating a stochastic control problem. The state process is governed by a modified geometric Brownian motion whose drift and diffusion coefficients depend…
We consider a stochastic volatility model with jumps where the underlying asset price is driven by the process sum of a 2-dimensional Brownian motion and a 2-dimensional compensated Poisson process. The market is incomplete, resulting in…
Matrix-variate data of high dimensions are frequently observed in finance and economics, spanning extended time periods, such as the long-term data on international trade flows among numerous countries. To address potential structural…
In this paper we develop a model of an order-driven market where traders set bids and asks and post market or limit orders according to exogenously fixed rules. Agents are assumed to have three components to the expectation of future asset…
Standard models in economics stress the role of intelligent agents who maximize utility. However, there may be situations where, for some purposes, constraints imposed by market institutions dominate intelligent agent behavior. We use data…
A technique for on-line estimation of spot volatility for high-frequency data is developed. The algorithm works directly on the transaction data and updates the volatility estimate immediately after the occurrence of a new transaction.…
We present a model of price formation in an inelastic market whose dynamics are partially driven by both money flows and their impact on asset prices. The money flow to the market is viewed as an investment policy of outside investors. For…
We present a simple model of a non-equilibrium self-organizing market where asset prices are partially driven by investment decisions of a bounded-rational agent. The agent acts in a stochastic market environment driven by various exogenous…
The author seeks to develop a model to alter the bid-offer spread, currently quoted by market makers, that varies with the market and trading conditions. The dynamic nature of financial markets and trading, as with the rest of social…
We introduce an interactive market setup with sequential auctions where agents receive variegated signals with a known deadline. The effects of differential information and mutual learning on the allocation of overall profit \& loss (P\&L)…
We endorse the idea, suggested in recent literature, that BitCoin prices are influenced by sentiment and confidence about the underlying technology; as a consequence, an excitement about the BitCoin system may propagate to BitCoin prices…
A new approach to obtaining market--directional information, based on a non-stationary solution to the dynamic equation "future price tends to the value that maximizes the number of shares traded per unit time" [1] is presented. In our…
A simple statement and accessible proof of a version of the Fundamental Theorem of Asset Pricing in discrete time is provided. Careful distinction is made between prices and cash flows in order to provide uniform treatment of all…
Post Modigliani and Miller (1958), the concept of usage of arbitrage created a permanent mark on the discourses of financial framework. The arbitrage process is largely based on information dissemination amongst the stakeholders operating…
We attempt to explain stock market dynamics in terms of the interaction among three variables: market price, investor opinion and information flow. We propose a framework for such interaction and apply it to build a model of stock market…
Prices in financial markets exhibit extreme jumps far more often than can be accounted for by external news. Further, magnitudes of price changes are correlated over long times. These so called stylized facts are quantified by scaling laws…
One of the shortcomings of the Black and Scholes model on option pricing is the assumption that trading of the underlying asset does not affect the price of that asset. This assumption can be fulfilled only in perfectly liquid markets.…