Related papers: Noise, risk premium, and bubble
We discuss - in what is intended to be a pedagogical fashion - a criterion, which is a lower bound on a certain ratio, for when a stock (or a similar instrument) is not a good investment in the long term, which can happen even if the…
In this paper we introduce a class of information-based models for the pricing of fixed-income securities. We consider a set of continuous- time information processes that describe the flow of information about market factors in a monetary…
Biondi et al. (2012) develop an analytical model to examine the emergent dynamic properties of share market price formation over time, capable to capture important stylized facts. These latter properties prove to be sensitive to regulatory…
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.…
We construct a statistical indicator for the detection of short-term asset price bubbles based on the information content of bid and ask market quotes for plain vanilla put and call options. Our construction makes use of the martingale…
It is shown that if kinetics of quantum transitions takes account of energy uncertainty of intermediate states, then it creates non-decaying correlations and non-averagable (flicker) fluctuations in the energy as well as in rates of…
In financial markets, the information that traders have about an asset is reflected in its price. The arrival of new information then leads to price changes. The `information-based framework' of Brody, Hughston and Macrina (BHM) isolates…
We consider the filtering problem of estimating a hidden random variable $X$ by noisy observations. The noisy observation process is constructed by a randomised Markov bridge (RMB) $(Z_t)_{t\in [0,T]}$ of which terminal value is set to…
The noise of signals or currents consisting from a sequence of pulses, elementary events or moving discrete objects (particles) is analyzed. A simple analytically solvable model is investigated in detail both analytically and numerically.…
The dynamical organization in the presence of noise of a Boolean neural network with random connections is analyzed. For low levels of noise, the system reaches a stationary state in which the majority of its elements acquire the same…
This paper introduces a new model of continuous opinion dynamics with random noise. The model belongs to the broad class of so called bounded confidence models. It differs from other popular bounded confidence models by the update rule,…
Recently research on bubble and its burst attract much interest of researchers in various field such as economics and physics. Economists have been regarding bubble as a disorder in prices. However, this research strategy has overlooked an…
We consider a market of risky financial assets whose participants are an informed trader, a representative uninformed trader, and noisy liquidity providers. We prove the existence of a market-clearing equilibrium when the insider…
Emphasizing the statistics of jumps crossing the strike and local time, we develop a decomposition of equity option risk premiums. Operationalizing this theoretical treatment, we equip the pricing kernel process with unspanned risks, embed…
We study the concept of financial bubble in a market model endowed with a set of probability measures, typically mutually singular to each other. In this setting we introduce the notions of robust bubble and robust fundamental value in a…
This paper examines signal detection in the presence of noise, with a particular emphasis to the nuclear activation analysis. The problem is to decide what between the signal-plus-background and no-signal hypotheses fits better the data and…
Even though measurement results obtained in the real world are generally both noisy and continuous, quantum measurement theory tends to emphasize the ideal limit of perfect precision and quantized measurement results. In this article, a…
In the presence of ambiguity on the driving force of market randomness, we consider the dynamic portfolio choice without any predetermined investment horizon. The investment criteria is formulated as a robust forward performance process,…
In a model with no given probability measure, we consider asset pricing in the presence of frictions and other imperfections and characterize the property of coherent pricing, a notion related to (but much weaker than) the no arbitrage…
We introduce the concept of "negative bubbles" as the mirror image of standard financial bubbles, in which positive feedback mechanisms may lead to transient accelerating price falls. To model these negative bubbles, we adapt the…