Related papers: Price and Quantity Trajectories: Second-order Dyna…
We discuss the time evolution of quotations of stocks and commodities and show that corrections to the orthodox Bachelier model inspired by quantum mechanical time evolution of particles may be important. Our analysis shows that traders…
We describe a model for evolving commodity forward prices that incorporates three important dynamics which appear in many commodity markets: mean reversion in spot prices and the resulting Samuelson effect on volatility term structure,…
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…
Estimating market impact and transaction costs of large trades (metaorders) is a very important topic in finance. However, using models of price and trade based on public market data provide average price trajectories which are…
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 statistical generalization is made of microeconomics in the spirit of going from classical to statistical mechanics. The price and quantity of every commodity1 traded in the market, at each instant of time, is considered to be an…
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…
Dynamic pricing of goods in a competitive environment to maximize revenue is a natural objective and has been a subject of research over the years. In this paper, we focus on a class of markets exhibiting the substitutes property with…
Quantum theory is used to model secondary financial markets. Contrary to stochastic descriptions, the formalism emphasizes the importance of trading in determining the value of a security. All possible realizations of investors holding…
Empirical data reveals that the liquidity flow into the order book (depositions, cancellations andmarket orders) is influenced by past price changes. In particular, we show that liquidity tends todecrease with the amplitude of past…
We provide simple models for the utility function (or psychology) of an actor trading a multitude of goods for money. In this framework, money has no intrinsic consumption value, but is required as a medium of exchange. A collection of such…
Higher-order theories of gravity are extensions to general relativity (GR) motivated mainly by high-energy physics searching for GR ultraviolet completeness. They are characterized by the inclusion of correction terms in the…
We analyze the relative price change of assets starting from basic supply/demand considerations subject to arbitrary motivations. The resulting stochastic differential equation has coefficients that are functions of supply and demand. We…
Income- and price-elasticity of demand quantify the responsiveness of markets to changes in income, and in prices, respectively. Under the assumptions of utility maximization and preference-independence (additive preferences), mathematical…
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 use insight from a model of earth tectonic plate movement to obtain a new understanding of the build up and release of stress in the price dynamics of the worlds stock exchanges. Nonlinearity enters the model due to a behavioral…
This paper is concerned with the determination of pricing strategies for a firm that in each period of a finite horizon receives replenishment quantities of a single product which it sells in two markets, e.g., a long-distance market and an…
The impact of trades on asset prices is a crucial aspect of market dynamics for academics, regulators and practitioners alike. Recently, universal and highly nonlinear master curves were observed for price impacts aggregated on all…
This paper analyzes stability conditions for wholesale electricity markets under real-time retail pricing and realistic consumption models with memory, which explicitly take into account previous electricity prices and consumption levels.…
We design three continuous--time models in finite horizon of a commodity price, whose dynamics can be affected by the actions of a representative risk--neutral producer and a representative risk--neutral trader. Depending on the model, the…