Related papers: Asset Prices and Risk Aversion

We propose a continuous-time model of trading with heterogeneous beliefs. Risk-neutral agents face quadratic costs-of-carry on positions and thus their marginal valuations decrease with the size of their position, as it would be the case…

An empirical analysis, suggested by optimal Merton dynamics, reveals some unexpected features of asset volumes. These features are connected to traders' belief and risk aversion. This paper proposes a trading strategy model in the optimal…

In an incomplete semimartingale model of a financial market, we consider several risk-averse financial agents who negotiate the price of a bundle of contingent claims. Assuming that the agents' risk preferences are modelled by convex…

As operators acting on the undetermined final settlement of a derivative security, expectation is linear but price is non-linear. When the market of underlying securities is incomplete, non-linearity emerges from the bid-offer around the…

Different models to study the wealth distribution in an artificial society have considered a transactional dynamics as the driving force. Those models include a risk aversion factor, but also a finite probability of favoring the poorer…

We introduce an agent-based model, in which agents set their prices to maximize profit. At steady state the market self-organizes into three groups: excess producers, consumers and balanced agents, with prices determined by their own…

The average economic agent is often used to model the dynamics of simple markets, based on the assumption that the dynamics of many agents can be averaged over in time and space. A popular idea that is based on this seemingly intuitive…

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…

This paper proposes a theory of stock market predictability patterns based on a model of heterogeneous beliefs. In a discrete finite time framework, some agents receive news about an asset's fundamental value through a noisy signal. The…

During a speculative episode the price of an item jumps from an initial level p_1 to a peak level p_2 before more or less returning to level p_1. The ratio p_2/p_1 is referred to as the amplitude A of the peak. This paper shows that for a…

The relationship between price volatilty and a market extremum is examined using a fundamental economics model of supply and demand. By examining randomness through a microeconomic setting, we obtain the implications of randomness in the…

Flexibility options, such as demand response, energy storage and interconnection, have the potential to reduce variation in electricity prices between different future scenarios, therefore reducing investment risk. Moreover, investment in…

The paper studies an oligopolistic equilibrium model of financial agents who aim to share their random endowments. The risk-sharing securities and their prices are endogenously determined as the outcome of a strategic game played among all…

In a continuous time stochastic economy, this paper considers the problem of consumption and investment in a financial market in which the representative investor exhibits a change in the discount rate. The investment opportunities are a…

A speculative agent with Prospect Theory preference chooses the optimal time to purchase and then to sell an indivisible risky asset to maximize the expected utility of the round-trip profit net of transaction costs. The optimization…

We consider a general local-stochastic volatility model and an investor with exponential utility. For a European-style contingent claim, whose payoff may depend on either a traded or non-traded asset, we derive an explicit approximation for…

In this paper, we describe a novel agent-based approach for modelling the transaction cost of buying or selling an asset in financial markets, e.g., to liquidate a large position as a result of a margin call to meet financial obligations.…

In nature and human societies, the effects of homogeneous and heterogeneous characteristics on the evolution of collective behaviors are quite different from each other. It is of great importance to understand the underlying mechanisms of…

We study social behaviour of agents on capital markets when these are perturbed by small perturbations. We use the mean field method. Social behaviour of agents on capital markets is described: volatility of the market, aversion constant…

Consider an investor trading dynamically to maximize expected utility from terminal wealth. Our aim is to study the dependence between her risk aversion and the distribution of the optimal terminal payoff. Economic intuition suggests that…