Related papers: The $500.00 AAPL close: Manipulation or hedging? A…
How and why stock prices move is a centuries-old question still not answered conclusively. More recently, attention shifted to higher frequencies, where trades are processed piecewise across different timescales. Here we reveal that price…
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…
Providing a measure of market risk is an important issue for investors and financial institutions. However, the existing models for this purpose are per definition symmetric. The current paper introduces an asymmetric capital asset pricing…
We describe a Matlab routine that allows us to estimate the jumps in financial asset prices using the Threshold (or Truncation) method of Mancini (2009). The routine is designed for application to five-minute log-returns. The underlying…
In this paper, we describe two approaches to model the behavior of stock prices. The first approach considers the underlying probability distribution of day-to-day price differences. The second approach models the movement of the price as a…
In order to understand the origin of stock price jumps, we cross-correlate high-frequency time series of stock returns with different news feeds. We find that neither idiosyncratic news nor market wide news can explain the frequency and…
It is well-known that using delta hedging to hedge financial options is not feasible in practice. Traders often rely on discrete-time hedging strategies based on fixed trading times or fixed trading prices (i.e., trades only occur if the…
This article considers the pricing and hedging of a call option when liquidity matters, that is, either for a large nominal or for an illiquid underlying asset. In practice, as opposed to the classical assumptions of a price-taking agent in…
We consider as given a discrete time financial market with a risky asset and options written on that asset and determine both the sub- and super-hedging prices of an American option in the model independent framework of ArXiv:1305.6008. We…
As the decade turns, we reflect on nearly thirty years of successful manipulation of the world's public equity markets. This reflection highlights a few of the key enabling ingredients and lessons learned along the way. A quantitative…
The dynamics of market prices is described as the evolution of opinions in the trading community regarding future market behavior. The price then is a function of the voting process of the market players in favor to raise or reduce the…
The analysis which assumes that tick by tick data is linear may lead to wrong conclusions if the underlying process is multiplicative. We compare data analysis done with the return and stock differences and we study the limits within the…
This article summarizes recent research in financial economics about why information, such as earnings announcements, moves stock prices. The article does not presume any prior exposure to finance beyond what you might read in newspapers.
Manipulating the security price is an act of artificially inflating or deflating the price of a security. Generally, manipulation is defined as a series of transactions designed to raise or lower a price of a security or to give the…
The dynamics of a stock market with heterogeneous agents is discussed in the framework of a recently proposed spin model for the emergence of bubbles and crashes. We relate the log returns of stock prices to magnetization in the model and…
Option pricing is an integral part of modern financial risk management. The well-known Black and Scholes (1973) formula is commonly used for this purpose. This paper is an attempt to extend their work to a situation in which the…
Large variations in stock prices happen with sufficient frequency to raise doubts about existing models, which all fail to account for non-Gaussian statistics. We construct simple models of a stock market, and argue that the large…
We consider the super-hedging price of an American option in a discrete-time market in which stocks are available for dynamic trading and European options are available for static trading. We show that the super-hedging price $\pi$ is given…
We note a simple mechanism that may at least partially resolve several outstanding economic puzzles, including why the cyclically adjusted price to earnings ratio of the S&P 500 index has been oddly high for the past two decades, why gains…
This paper discusses a novel explanation for asymmetric volatility based on the anchoring behavioral pattern. Anchoring as a heuristic bias causes investors focusing on recent price changes and price levels, which two lead to a belief in…