Related papers: Semiclosed Pricing Mechanism
We study the effect of investor inertia on stock price fluctuations with a market microstructure model comprising many small investors who are inactive most of the time. It turns out that semi-Markov processes are tailor made for modelling…
In this paper we provide a comprehensive analysis of a structural model for the dynamics of prices of assets traded in a market originally proposed in [1]. The model takes the form of an interacting generalization of the geometric Brownian…
The present paper describes a practical example in which the probability distribution of the prices of a stock market blue chip is calculated as the wave function of a quantum particle confined in a potential well. This model may naturally…
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…
We attempt to explain stock market dynamics in terms of the interaction among three variables: market price, investor opinion and information flow. We propose a framework for such interaction and apply it to build a model of stock market…
We propose a simple model for the behaviour of longterm investors on a stock market, consisting of three particles, which represent the current price of the stock and the opinion of the buyers, respectively sellers, about the right trading…
An innovative extension of Geometric Brownian Motion model is developed by incorporating a weighting factor and a stochastic function modelled as a mixture of power and trigonometric functions. Simulations based on this Modified Brownian…
Modern approaches to stock pricing in quantitative finance are typically founded on the 'Black-Scholes model' and the underlying 'random walk hypothesis'. Empirical data indicate that this hypothesis works well in stable situations but, in…
We propose a simple stochastic model of market behavior. Dividing market participants into two groups: trend-followers and fundamentalists, we derive the general form of a stochastic equation of market dynamics. The model has two…
This paper presents a framework of imitating the principal investor's behavior for optimal pricing and hedging options. We construct a non-deterministic Markov decision process for modeling stock price change driven by the principal…
Financial stock returns correlations have been studied in the prism of random matrix theory, to distinguish the signal from the "noise". Eigenvalues of the matrix that are above the rescaled Marchenko Pastur distribution can be interpreted…
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…
Price movements of stock market are not totally random. In fact, what drives the financial market and what pattern financial time series follows have long been the interest that attracts economists, mathematicians and most recently computer…
In this paper we continue the study of the simulated stock market framework defined by the driving sentiment processes. We focus on the market environment driven by the buy/sell trading sentiment process of the Markov chain type. We apply…
Following a Geometrical Brownian Motion extension into an Irrational Fractional Brownian Motion model, we re-examine agent behaviour reacting to time dependent news on the log-returns thereby modifying a financial market evolution. We…
Understanding the mutual relationships between information flows and social activity in society today is one of the cornerstones of the social sciences. In financial economics, the key issue in this regard is understanding and quantifying…
In the information-based approach to asset pricing the market filtration is modelled explicitly as a superposition of signals concerning relevant market factors and independent noise. The rate at which the signal is revealed to the market…
It is believed by the majority today that the efficient market hypothesis is imperfect because of market irrationality. Using the physical concepts and mathematical structures of quantum mechanics, we construct an econophysics framework for…
Stock prices are influenced over time by underlying macroeconomic factors. Jumping out of the box of conventional assumptions about the unpredictability of the market noise, we modeled the changes of stock prices over time through the…
A Markovian modulation captures the trend in the market and influences the market coefficients accordingly. The different scenarios presented by the market are modeled as the distinct states of a discrete-time Markov chain. In our paper, we…