Related papers: Information-based models for finance and insurance
We characterise the solutions to a continuous-time optimal liquidity provision problem in a market populated by informed and uninformed traders. In our model, the asset price exhibits fads -- these are short-term deviations from the…
We introduce a general class of stochastic processes driven by a multifractional Brownian motion (mBm) and study the estimation problems of their pointwise H\"older exponents (PHE) based on a new localized generalized quadratic variation…
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…
Since exchange economy considerably varies in the market assets, asset prices have become an attractive research area for investigating and modeling ambiguous and uncertain information in today markets. This paper proposes a new generative…
This work considers a stochastic model in which the uncertainty is driven by a multidimensional Brownian motion. The market price of risk process makes the transition between real world probability measure and risk neutral probability…
We propose a model for the credit markets in which the random default times of bonds are assumed to be given as functions of one or more independent "market factors". Market participants are assumed to have partial information about each of…
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…
The Glosten-Milgrom model describes a single asset market, where informed traders interact with a market maker, in the presence of noise traders. We derive an analogy between this financial model and a Szil\'ard information engine by {\em…
The existence of the pricing kernel is shown to imply the existence of an ambient information process that generates market filtration. This information process consists of a signal component concerning the value of the random variable X…
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…
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…
A dynamical model is introduced for the formation of a bullish or bearish trends driving an asset price in a given market. Initially, each agent decides to buy or sell according to its personal opinion, which results from the combination of…
Decision making in modern stochastic systems, including e-commerce platforms, financial markets and healthcare systems, has evolved into a multifaceted process that combines information acquisition and adaptive information sources. This…
The present paper proposes a new framework for describing the stock price dynamics. In the traditional geometric Brownian motion model and its variants, volatility plays a vital role. The modern studies of asset pricing expand around…
The non-gaussianity of processes observed in financial markets and relatively good performance of gaussian models can be reconciled by replacing the Brownian motion with Levy processes whose Levy densities decay as exp(-lambda|x|) or…
This paper shows that Hamiltonians and operators can also be put to good use even in contexts which are not purely physics based. Consider the world of finance. The work presented here {models a two traders system with information exchange…
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…
We consider a limit order book, where buyers and sellers register to trade a security at specific prices. The largest price buyers on the book are willing to offer is called the market bid price, and the smallest price sellers on the book…
We present a Markovian market model driven by a hidden Brownian efficient price. In particular, we extend the queue-reactive model, making its dynamics dependent on the efficient price. Our study focuses on two sub-models: a signal-driven…
We study the pricing of credit derivatives with asymmetric information. The managers have complete information on the value process of the firm and on the default threshold, while the investors on the market have only partial observations,…