Related papers: Noise, risk premium, and bubble
We consider a dynamic pricing problem for repeated contextual second-price auctions with multiple strategic buyers who aim to maximize their long-term time discounted utility. The seller has limited information on buyers' overall demand…
In the information-based pricing framework of Brody, Hughston and Macrina, the market filtration $\{ \mathcal F_t\}_{t\geq 0}$ is generated by an information process $\{ \xi_t\}_{t\geq0}$ defined in such a way that at some fixed time $T$ an…
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…
Equity premium, the surplus returns of stocks over bonds, has been an enduring puzzle. While numerous prior works approach the problem assuming the utility of money is invariant across contexts, our approach implies that in efficient…
Measurement devices always add noise to the signal of interest and it is necessary to evaluate the variance of the results. This article focuses on stationary random processes whose Power Spectrum Density is a power law of frequency. For…
We define a financial bubble as a period of unsustainable growth, when the price of an asset increases ever more quickly, in a series of accelerating phases of corrections and rebounds. More technically, during a bubble phase, the price…
We consider a generalization of the classical risk model when the premium intensity depends on the current surplus of an insurance company. All surplus is invested in the risky asset, the price of which follows a geometric Brownian motion.…
Many studies assume stock prices follow a random process known as geometric Brownian motion. Although approximately correct, this model fails to explain the frequent occurrence of extreme price movements, such as stock market crashes. Using…
This paper studies the value of a firm's internal information when the firm faces an adverse selection problem arising from unobservable managerial abilities. While more precise information allows the firm to make ex post more efficient…
We develop a theoretical trading conditioning model subject to price volatility and return information in terms of market psychological behavior, based on analytical transaction volume-price probability wave distributions in which we use…
We propose a class of discrete-time stochastic models for the pricing of inflation-linked assets. The paper begins with an axiomatic scheme for asset pricing and interest rate theory in a discrete-time setting. The first axiom introduces a…
We study mechanism design for public-good provision under a noisy privacy-preserving transformation of individual agents' reported preferences. The setting is a standard binary model with transfers and quasi-linear utility. Agents report…
We discuss the role of information entropy on the behaviour of random processes, and how this might take effect in the dynamics of financial market prices. We then go on to show how the Open Quantum Systems approach can be used as a more…
Option pricing is mainly based on ideal market conditions which are well represented by the Geometric Brownian Motion (GBM) as market model. We study the effect of non-ideal market conditions on the price of the option. We focus our…
Trading pressure from one asset can move the price of another, a phenomenon referred to as cross impact. Using tick-by-tick data spanning 5 years for 500 assets listed in the United States, we identify the features that make cross-impact…
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…
The extraction of signals from noise is a common problem in all areas of science and engineering. A particularly useful version is that of forecasting: determining a causal filter that estimates a future value of a hidden process from past…
This paper studies the equilibrium price of a continuous time asset traded in a market with heterogeneous investors. We consider a positive mean reverting asset and two groups of investors who have different beliefs on the speed of mean…
We show that infinite divisibility of a trading commodity leads to a self-sustained price bubble when traders use adaptive investment strategies. The adaptive strategy can be viewed as a psychological response of a trader to the situation…
A rising topic in computational journalism is how to enhance the diversity in news served to subscribers to foster exploration behavior in news reading. Despite the success of preference learning in personalized news recommendation, their…