Related papers: Second-order Price Dynamics: Approach to Equilibri…
Markets have internal dynamics leading to excess volatility and other phenomena that are difficult to explain using rational expectations models. This paper studies these using a nonequilibrium price formation rule, developed in the context…
We study the range of prices at which a rational agent should contemplate transacting a financial contract outside a given securities market. Trading is subject to nonproportional transaction costs and portfolio constraints and full…
We study equilibria in two-buyer sequential second-price (or first-price) auctions for identical goods. Buyers have weakly decreasing incremental values, and we make a behavioural no-overbidding assumption: the buyers do not bid above their…
Non-equilibrium phenomena occur not only in physical world, but also in finance. In this work, stochastic relaxational dynamics (together with path integrals) is applied to option pricing theory. A recently proposed model (by Ilinski et…
This paper studies dynamic monopoly pricing for a broad class of settings that allow for multiple durable, multiple rental, or a mix of varieties. We show that the driving force behind pricing dynamics is the existence of trading-up…
If financial markets displayed the informational efficiency postulated in the efficient markets hypothesis (EMH), arbitrage operations would be self-extinguishing. The present paper considers arbitrage sequences in foreign exchange (FX)…
We study bilateral trade with interdependent values as an informed-principal problem. The mechanism-selection game has multiple equilibria that differ with respect to principal's payoff and trading surplus. We characterize the equilibrium…
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…
Equilibrium is a rather ideal situation, the exception rather than the rule in Nature. Whenever the external or internal parameters of a physical system are varied its subsequent relaxation to equilibrium may be either impossible or take…
Platform giants in China have operated with persistently compressed margins in highly concentrated markets for much of the past decade, despite market shares exceeding 60\% in core segments. Standard theory predicts otherwise: either the…
I introduce a stability notion, dynamic stability, for two-sided dynamic matching markets where (i) matching opportunities arrive over time, (ii) matching is one-to-one, and (iii) matching is irreversible. The definition addresses two…
The Walras approach to equilibrium focuses on the existence of market prices at which the total demands for goods are matched by the total supplies. Trading activities that might identify such prices by bringing agents together as potential…
We study the formation of derivative prices in equilibrium between risk-neutral agents with heterogeneous beliefs about the dynamics of the underlying. Under the condition that the derivative cannot be shorted, we prove the existence of a…
Although classical economic theory is based on the concept of stable equilibrium, real economic systems appear to be always out of equilibrium. Indeed, they share many of the dynamical features of other complex systems, e.g., ecological…
Budget constraints are ubiquitous in online advertisement auctions. To manage these constraints and smooth out the expenditure across auctions, the bidders (or the platform on behalf of them) often employ pacing: each bidder is assigned a…
We study risk-sharing economies where heterogenous agents trade subject to quadratic transaction costs. The corresponding equilibrium asset prices and trading strategies are characterised by a system of nonlinear, fully-coupled…
In many two-sided markets, the parties to be matched have incomplete information about their characteristics. We consider the settings where the parties engaged are extremely patient and are interested in long-term partnerships. Hence, once…
Beyond its obvious macro-economic relevance, fiat money has important micro-economic implications. They matter for addressing No. 8 in Smale's "Mathematical Problems for the Next Century": extend the mathematical model of general…
General equilibrium is the dominant theoretical framework for economic policy analysis at the level of the whole economy. In practice, general equilibrium treats economies as being always in equilibrium, albeit in a sequence of equilibria…
We investigate the effects of the social interactions of a finite set of agents on an equilibrium pricing mechanism. A derivative written on non-tradable underlyings is introduced to the market and priced in an equilibrium framework by…