Related papers: Modelling Information Flows in Financial Markets
We study the hedging and valuation of European and American claims on a non-traded asset $Y$, when a traded stock $S$ is available for hedging, with $S$ and $Y$ following correlated geometric Brownian motions. This is an incomplete market,…
In this paper, we propose a minimal model beyond geometric Brownian motion that aims to describe price actions with market inefficiency. From simple financial theory considerations, we arrive at a simple two-variable hidden Markovian time…
A general information equilibrium model in the case of ideal information transfer is defined and then used to derive the relationship between supply (information destination) and demand (information source) with the price as the detector of…
The information released to investors in financial markets has various forms. We refer to range information as information about the upper and lower bound which the payoff of a risky asset may reach in the future. This study develops…
Much research has been conducted arguing that tipping points at which complex systems experience phase transitions are difficult to identify. To test the existence of tipping points in financial markets, based on the alternating offer…
The information dynamics in finance and insurance applications is usually modeled by a filtration. This paper looks at situations where information restrictions apply such that the information dynamics may become non-monotone. A fundamental…
We consider a constructive model for asset price bubbles, where the market price $W$ is endogenously determined by the trading activity on the market and the fundamental price $W^F$ is exogenously given, as in the work of Jarrow, Protter…
Prediction models calibrated using historical data may forecast poorly if the dynamics of the present and future differ from observations in the past. For this reason, predictions can be improved if information like forward looking views…
In an incomplete market underpinned by the trinomial model, we consider two investors : an ordinary agent whose decisions are driven by public information and an insider who possesses from the beginning a surplus of information encoded…
We focus on the influence of external sources of information upon financial markets. In particular, we develop a stochastic agent-based market model characterized by a certain herding behavior as well as allowing traders to be influenced by…
We introduce a stochastic price model where, together with a random component, a moving average of logarithmic prices contributes to the price formation. Our model is tested against financial datasets, showing an extremely good agreement…
This study evaluates the scale-dependent informational efficiency of stock markets using the Financial Chaos Index, a tensor-eigenvalue-based measure of realized volatility. Incorporating Granger causality and network-theoretic analysis…
A Markovian modulation captures the trend in the market and influences the market coefficients accordingly. The different scenarios presented by the market are modeled as the distinct states of a discrete-time Markov chain. In our paper, we…
This paper is part of an ongoing investigation of "pragmatic information", defined in Weinberger (2002) as "the amount of information actually used in making a decision". Because a study of information rates led to the Noiseless and Noisy…
In this paper we present an interacting-agent model of stock markets. We describe a stock market through an Ising-like model in order to formulate the tendency of traders getting to be influenced by the other traders' investment attitudes…
Understanding the mutual relationships between information flows and social activity in society today is one of the cornerstones of the social sciences. In financial economics, the key issue in this regard is understanding and quantifying…
Electricity is traded on various markets with different time horizons and regulations. Short-term intraday trading becomes increasingly important due to the higher penetration of renewables. In Germany, the intraday electricity price…
The numeraire portfolio in a financial market is the unique positive wealth process that makes all other nonnegative wealth processes, when deflated by it, supermartingales. The numeraire portfolio depends on market characteristics, which…
This paper models macro financial variables alike to financial fluids with local interactions and describes surface-like waves of Investment and Profits. We regard macro-finance as ensemble of economic agents and use their risk ratings as…
Prediction markets are often described as mechanisms that ``aggregate information'' into prices, yet the mapping from dispersed private information to observed market histories is typically noisy, endogenous, and shaped by heterogeneous and…