Related papers: Noise, risk premium, and bubble
This paper presents an axiomatic scheme for interest rate models in discrete time. We take a pricing kernel approach, which builds in the arbitrage-free property and provides a link to equilibrium economics. We require that the pricing…
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 study a continuous time economy where throughout time, insiders receive private signals regarding the risky assets' terminal payoff. We prove existence of a partial communication equilibrium where, at each private signal time, the public…
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…
The risk premium is one of main concepts in mathematical finance. It is a measure of the trade-offs investors make between return and risk and is defined by the excess return relative to the risk-free interest rate that is earned from an…
We investigate the financial market dynamics by introducing a heterogeneous agent-based opinion formation model. In this work, we organize the individuals in a financial market by their trading strategy, namely noise traders and…
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…
Large variations in stock prices happen with sufficient frequency to raise doubts about existing models, which all fail to account for non-Gaussian statistics. We construct simple models of a stock market, and argue that the large…
Using recent advances in the econometrics literature, we disentangle from high frequency observations on the transaction prices of a large sample of NYSE stocks a fundamental component and a microstructure noise component. We then relate…
In this paper we further extend the optimal bubble riding model proposed by Tangpi and Wang by allowing for price-dependent entry times. Agents are characterized by their individual entry threshold that represents their belief in the…
A deterministic trading strategy can be regarded as a signal processing element that uses external information and past prices as inputs and incorporates them into future prices. This paper uses a market maker based method of price…
We present a novel microscopic stock market model consisting of a large number of random agents modeling traders in a market. Each agent is characterized by a set of parameters that serve to make iterated predictions of two successive…
Trading a financial asset pushes its price as well as the prices of other assets, a phenomenon known as cross-impact. We consider a general class of kernel-based cross-impact models and investigate suitable parameterisations for trading…
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…
Any ensemble of quantum particles exhibits statistical fluctuations known as spin noise. Here, we provide a description of spin noise in the language of open quantum systems. The description unifies the signatures of spin noise under both…
We address microscopic, agent based, and macroscopic, stochastic, modeling of the financial markets combining it with the exogenous noise. The interplay between the endogenous dynamics of agents and the exogenous noise is the primary…
In this article we model chaotic dynamics in financial markets by treating the market price, and market makers' inventory, as anharmonic oscillators with a nonlinear coupling. The market makers' risk appetite being the key parameter that…
This article provides a self-contained overview of the theory of rational asset price bubbles. We cover topics from basic definitions, properties, and classical results to frontier research, with an emphasis on bubbles attached to real…
The relationship between price volatilty and a market extremum is examined using a fundamental economics model of supply and demand. By examining randomness through a microeconomic setting, we obtain the implications of randomness in the…
One the one hand, rough volatility has been shown to provide a consistent framework to capture the properties of stock price dynamics both under the historical measure and for pricing purposes. On the other hand, market price of volatility…