Related papers: A fully consistent, minimal model for non-linear m…
In this paper we analyze a nonlinear Black--Scholes model for option pricing under variable transaction costs. The diffusion coefficient of the nonlinear parabolic equation for the price $V$ is assumed to be a function of the underlying…
We introduce a prototype model in an attempt to capture some aspects of market dynamics simulating a trading mechanism. The model description starts with a discrete-space, continuous-time Markov process describing arrival and movement of…
The goal of this paper is to disentangle the roles of volume and of participation rate in the price response of the market to a sequence of transactions. To do so, we are inspired the methodology introduced in arXiv:1402.1288,…
We present a methodology for representing probabilistic relationships in a general-equilibrium economic model. Specifically, we define a precise mapping from a Bayesian network with binary nodes to a market price system where consumers and…
In the quest for market mechanisms that are easy to implement, yet close to optimal, few seem as viable as posted pricing. Despite the growing body of impressive results, the performance of most posted price mechanisms however, rely…
In this paper, inspired by the work of Megiddo on the formation of preferences and strategic analysis, we consider an early market model studied in the field of economic theory, in which each trader's utility may be influenced by the…
In feature-based dynamic pricing, a seller sets appropriate prices for a sequence of products (described by feature vectors) on the fly by learning from the binary outcomes of previous sales sessions ("Sold" if valuation $\geq$ price, and…
Consumers can acquire information through their own search efforts or through their social network. Information diffusion via word-of-mouth communication leads to some consumers free-riding on their "friends" and less information…
This paper performs the numerical analysis and the computation of a Spread option in a market with imperfect liquidity. The number of shares traded in the stock market has a direct impact on the stock's price. Thus, we consider a…
A simple trading model based on pair pattern strategy space with holding periods is proposed. Power-law behaviors are observed for the return variance $\sigma^2$, the price impact $H$ and the predictability $K$ for both models with linear…
We study a financial model with a non-trivial price impact effect. In this model we consider the interaction of a large investor trading in an illiquid security, and a market maker who is quoting prices for this security. We assume that the…
Motivated by the desire to bridge the gap between the microscopic description of price formation (agent-based modeling) and the stochastic differential equations approach used classically to describe price evolution at macroscopic time…
We propose a nonlinear difference-in-differences method to estimate multivariate counterfactual distributions in classical treatment and control study designs with observational data. Our approach sheds a new light on existing approaches…
Trading large volumes of a financial asset in order driven markets requires the use of algorithmic execution dividing the volume in many transactions in order to minimize costs due to market impact. A proper design of an optimal execution…
Price impact of a trade is an important element in pre-trade and post-trade analyses. We introduce a framework to analyze the market price of liquidity risk, which allows us to derive an inhomogeneous Bernoulli ordinary differential…
In Part II of this paper, we concentrate our analysis on the price dynamical model with the moving average rules developed in Part I of this paper. By decomposing the excessive demand function, we reveal that it is the interplay between…
To determine the welfare implications of price changes in demand data, we introduce a revealed preference relation over prices. We show that the absence of cycles in this relation characterizes a consumer who trades off the utility of…
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…
Motivated by the practical challenge in monitoring the performance of a large number of algorithmic trading orders, this paper provides a methodology that leads to automatic discovery of the causes that lie behind a poor trading…
Constant price impact functions, much used in financial literature, are shown to give rise to paradoxical outcomes since they do not allow for proper predictability removal: for instance the exploitation of a single large trade whose size…