Related papers: A simple microstructure return model explaining mi…
This paper describes the dependence of market-based statistical moments of returns on statistical moments and correlations of the current and past trade values. We use Markowitz's definition of value weighted return of a portfolio as the…
This paper considers liquidity as an explanation for the positive association between expected idiosyncratic volatility (IV) and expected stock returns. Liquidity costs may affect the stock returns, through bid-ask bounce and other…
Elastoplastic lattice models for the response of solids to deformation typically incorporate structure only implicitly via a local yield strain that is assigned to each site. However, the local yield strain can change in response to a…
In this short paper, we study the simulation of a large system of stochastic processes subject to a common driving noise and fast mean-reverting stochastic volatilities. This model may be used to describe the firm values of a large pool of…
This paper develops a comprehensive theoretical framework that imports concepts from stochastic thermodynamics to model price impact and characterize the feasibility of round-trip arbitrage in financial markets. A trading cycle is treated…
Stock prices often react sluggishly to news, producing gradual jumps and jump delays. Econometricians typically treat these sluggish reactions as microstructure effects and settle for a coarse sampling grid to guard against them.…
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…
The cross correlation matrix between equities comprises multiple interactions between traders with varying strategies and time horizons. In this paper, we use the Maximum Overlap Discrete Wavelet Transform to calculate correlation matrices…
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…
A macroeconomic model based on the economic variables (i) assets, (ii) leverage (defined as debt over asset) and (iii) trust (defined as the maximum sustainable leverage) is proposed to investigate the role of credit in the dynamics of…
This paper estimates models of high frequency index futures returns using `around the clock' 5-minute returns that incorporate the following key features: multiple persistent stochastic volatility factors, jumps in prices and volatilities,…
The aim of this work is to explore the possible types of phenomena that simple macroeconomic Agent-Based models (ABM) can reproduce. We propose a methodology, inspired by statistical physics, that characterizes a model through its 'phase…
We study the mean escape time in a market model with stochastic volatility. The process followed by the volatility is the Cox Ingersoll and Ross process which is widely used to model stock price fluctuations. The market model can be…
In this chapter we review some recent results on the dynamics of price formation in financial markets and its relations with the efficient market hypothesis. Specifically, we present the limit order book mechanism for markets and we…
The main goal of this paper is an application of Bayesian inference in testing the relation between risk and return on the financial instruments. On the basis of the Intertemporal CAPM model we built a general sampling model suitable in…
We introduce a new diffusion process Xt to describe asset prices within an economic bubble cycle. The main feature of the process, which differs from existing models, is the drift term where a mean-reversion is taken based on an exponential…
We analyze a simple macroeconomic model where rational inflation expectations is replaced by a boundedly rational, and genuinely sticky, response to changes in the actual inflation rate. The stickiness is introduced in a novel way using a…
We propose a new concept of modulated bipower variation for diffusion models with microstructure noise. We show that this method provides simple estimates for such important quantities as integrated volatility or integrated quarticity.…
Fundamental variables in financial market are not only price and return but a very important role is also played by trading volumes. Here we propose a new multivariate model that takes into account price returns, logarithmic variation of…
Noise-induced transitions between metastable fixed points in systems evolving on multiple time scales are analyzed in situations where the time scale separation gives rise to a slow manifold with bifurcation. This analysis is performed…