Related papers: L\'evy Information and the Aggregation of Risk Ave…
Opinions and beliefs determine the evolution of social systems. This is of particular interest in finance, as the increasing complexity of financial systems is coupled with information overload. Opinion formation, therefore, is not always…
Behavioral finance has become an increasingly important subfield of finance. However the main parts of behavioral finance, prospect theory included, understand financial markets through individual investment behavior. Behavioral finance…
The price of a stock will rarely follow the assumed model and a curious investor or a Regulatory Authority may wish to obtain a probability model the prices support. A risk neutral probability ${\cal P}^*$ for the stock's price at time $T$…
We consider the problem of determining the L\'evy exponent in a L\'evy model for asset prices given the price data of derivatives. The model, formulated under the real-world measure $\mathbb P$, consists of a pricing kernel…
We examine the evolutionary basis for risk aversion with respect to aggregate risk. We study populations in which agents face choices between alternatives with different levels of aggregate risk. We show that the choices that maximize the…
The present paper shows that it can be advantageous for traders to publish their information on the true value of an asset even if they (i) cannot build a position in the asset prior to the publication of their information and (ii) cannot…
In speculative markets, risk-free profit opportunities are eliminated by traders exploiting them. Markets are therefore often described as "informationally efficient", rapidly removing predictable price changes, and leaving only residual…
The classical derivation of the well-known Vasicek model for interest rates is reformulated in terms of the associated pricing kernel. An advantage of the pricing kernel method is that it allows one to generalize the construction to the…
In this paper we develop a framework for discretely compounding interest rates which is based on the forward price process approach. This approach has a number of advantages, in particular in the current market environment. Compared to the…
Consider a multi-agent network comprised of risk averse social sensors and a controller that jointly seek to estimate an unknown state of nature, given noisy measurements. The network of social sensors perform Bayesian social learning -…
We consider the design of prediction market mechanisms known as automated market makers. We show that we can design these mechanisms via the mold of \emph{exponential family distributions}, a popular and well-studied probability…
Today's society faces widening disagreement and conflicts among constituents with incompatible views. Escalated views and opinions are seen not only in radical ideology or extremism but also in many other scenes of our everyday life. Here…
In the presence of ambiguity on the driving force of market randomness, we consider the dynamic portfolio choice without any predetermined investment horizon. The investment criteria is formulated as a robust forward performance process,…
An agent acquires information dynamically until her belief about a binary state reaches an upper or lower threshold. She can choose any signal process subject to a constraint on the rate of entropy reduction. Strategies are ordered by "time…
In market modeling, one often treats buyers as a homogeneous group. In this paper we consider buyers with heterogeneous preferences and products available in many variants. Such a framework allows us to successfully model various market…
This paper presents an optimal allocation problem in a financial market with one risk-free and one risky asset, when the market is driven by a stochastic market price of risk. We solve the problem in continuous time, for an investor with a…
In this paper incomplete-information models are developed for the pricing of securities in a stochastic interest rate setting. In particular we consider credit-risky assets that may include random recovery upon default. The market…
It is essential to incorporate the impact of investor behavior when modeling the dynamics of asset returns. In this paper, we reconcile behavioral finance and rational finance by incorporating investor behavior within the framework of…
Prediction markets are a popular, prominent, and successful structure for a collective intelligence platform. However the exact mechanism by which information known to the participating traders is incorporated into the market price is…
In the age of technology, individuals accelerate their biased gathering of information which in turn leads to a population becoming extreme and more polarized. Here we study a partial differential equation model for opinion dynamics that…