Related papers: Information-based models for finance and insurance
We investigate asymmetry of information in the context of robust approach to pricing and hedging of financial derivatives. We consider two agents, one who only observes the stock prices and another with some additional information, and…
An asymmetric information model is introduced for the situation in which there is a small agent who is more susceptible to the flow of information in the market than the general market participant, and who tries to implement strategies…
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…
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…
Stochastic volatility models describe asset prices $S_t$ as driven by an unobserved process capturing the random dynamics of volatility $\sigma_t$. Here, we quantify how much information about $\sigma_t$ can be inferred from asset prices…
This work suggests modifications to a previously introduced class of heterogeneous agent models that allow for the inclusion of different types of agent motivations and behaviours in a unified way. The agents operate within a highly…
In this paper we study the evolution of asset price bubbles driven by contagion effects spreading among investors via a random matching mechanism in a discrete-time version of the liquidity based model of [25]. To this scope, we extend the…
Modelling accurately financial price variations is an essential step underlying portfolio allocation optimization, derivative pricing and hedging, fund management and trading. The observed complex price fluctuations guide and constraint our…
We model the dynamics of asset prices and associated derivatives by consideration of the dynamics of the conditional probability density process for the value of an asset at some specified time in the future. In the case where the price…
A market with asymmetric information can be viewed as a repeated exchange game between the informed sector and the uninformed one. In a market with risk-neutral agents, De Meyer [2010] proves that the price process should be a particular…
In this paper incomplete-information models are developed for the pricing of securities in a stochastic interest rate setting. In particular we consider credit-risky assets that may include random recovery upon default. The market…
Financial markets convert the incremental arrival of information into asset price changes. In a sandpile model grains of sand represent bits of data, and the size of an avalanche, governed by a scaling law, is linked to price volatility.…
Numerous kinds of uncertainties may affect an economy, e.g. economic, political, and environmental ones. We model the aggregate impact by the uncertainties on an economy and its associated financial market by randomised mixtures of L\'evy…
In this article we consider an optimization problem of expected utility maximization of continuous-time trading in a financial market. This trading is constrained by a benchmark for a utility-based shortfall risk measure. The market…
We develop a model of how information flows into a market, and derive algorithms for automatically detecting and explaining relevant events. We analyze data from twenty-two "political stock markets" (i.e., betting markets on political…
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…
In this paper, we describe a novel agent-based approach for modelling the transaction cost of buying or selling an asset in financial markets, e.g., to liquidate a large position as a result of a margin call to meet financial obligations.…
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…
The shortcomings of the popular Black-Scholes-Merton (BSM) model have led to models which could more accurately model the behavior of the underlying assets in energy markets, particularly in electricity and future oil prices. In this paper…
We introduce a simple framework in which market participants update their prior about an efficient price with a model-based learning process. We show that exponential intensities for the arrival of aggressive orders arise naturally in this…