Related papers: Shorting in Speculative Markets
Episodes of market crashes have fascinated economists for centuries. Although many academics, practitioners and policy makers have studied questions related to collapsing asset price bubbles, there is little consensus yet about their causes…
In this study, we consider the asset pricing under model uncertainty with discrete time and states structure. For the single-period securities model, we give a novel definition of arbitrage under a family of probability, and explore of its…
This paper presents SIMPOL (Simplified Policy Iteration), a modular numerical framework for solving continuous-time heterogeneous agent models. The core economic problem, the optimization of consumption and savings under idiosyncratic…
This papers addresses the stock option pricing problem in a continuous time market model where there are two stochastic tradable assets, and one of them is selected as a num\'eraire. It is shown that the presence of arbitrarily small…
We consider the problem of belief aggregation: given a group of individual agents with probabilistic beliefs over a set of uncertain events, formulate a sensible consensus or aggregate probability distribution over these events. Researchers…
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…
This paper presents an axiomatic scheme for interest rate models in discrete time. We take a pricing kernel approach, which builds in the arbitrage-free property and provides a link to equilibrium economics. We require that the pricing…
We consider the problem of option hedging in a market with proportional transaction costs. Since super-replication is very costly in such markets, we replace perfect hedging with an expected loss constraint. Asymptotic analysis for small…
In a dynamic matching market, such as a marriage or job market, how should agents balance accepting a proposed match with the cost of continuing their search? We consider this problem in a discrete setting, in which agents have cardinal…
We introduce a system of kinetic equations describing an exchange market consisting of two populations of agents (dealers and speculators) expressing the same preferences for two goods, but applying different strategies in their exchanges.…
We consider a market consisting of one safe and one risky asset, which offer constant investment opportunities. Taking into account both proportional transaction costs and linear price impact, we derive optimal rebalancing policies for…
This paper considers the pricing of long-term options on assets such as housing, where either government intervention or the economic nature of the asset is assumed to limit large falls in prices. The observed asset price is modelled by a…
In this paper we study the price dynamics in a simple model of financial markets with heterogeneous agents. We concentrate on how increases in the total number of active traders influences fluctuations of asset prices. We find that a…
Duality for robust hedging with proportional transaction costs of path dependent European options is obtained in a discrete time financial market with one risky asset. Investor's portfolio consists of a dynamically traded stock and a static…
We consider a portfolio with call option and the corresponding underlying asset under the standard assumption that stock-market price represents a random variable with lognormal distribution. Minimizing the variance (hedging risk) of the…
We study how transaction cost affects to the equilibrium return and optimal stock holdings in equilibrium. To this end, we develop a continuous-time risk-sharing model where heterogenous agents trade toward terminal target holdings subject…
This paper studies arbitrage pricing theory in financial markets with implicit transaction costs. We extend the existing theory to include the more realistic possibility that the price at which the investors trade is dependent on the traded…
We present a variation of the well-known binomial model of asset prices. This variation incorporates a bound to short-selling, inspired by a model from Gunduz Caginalp[2]. We formalize this model and prove a formula for all the moments of…
We investigate the optimal strategy over a finite time horizon for a portfolio of stock and bond and a derivative in an multiplicative Markovian market model with transaction costs (friction). The optimization problem is solved by a…
A microeconomic approach is proposed to derive the fluctuations of risky asset price, where the market participants are modeled as prospect trading agents. As asset price is generated by the temporary equilibrium between demand and supply,…