Related papers: Behavioral Finance Option Pricing Formulas Consist…
In this paper we present a continuous time dynamical model of heterogeneous agents interacting in a financial market where transactions are cleared by a market maker. The market is composed of fundamentalist, trend following and contrarian…
An elementary arbitrage principle and the existence of trends in financial time series, which is based on a theorem published in 1995 by P. Cartier and Y. Perrin, lead to a new understanding of option pricing and dynamic hedging. Intricate…
We investigate the mechanisms behind the power-law distribution of stock returns using artificial market simulations. While traditional financial theory assumes Gaussian price fluctuations, empirical studies consistently show that the tails…
Prediction markets mobilize financial incentives to forecast binary event outcomes through the aggregation of dispersed beliefs and heterogeneous information. Their growing popularity and demonstrated predictive accuracy in political…
It has become the default in markets such as ad auctions for participants to bid in an auction through automated bidding agents (autobidders) which adjust bids over time to satisfy return-over-spend constraints. Despite the prominence of…
Real-time bidding is the new paradigm of programmatic advertising. An advertiser wants to make the intelligent choice of utilizing a \textbf{Demand-Side Platform} to improve the performance of their ad campaigns. Existing approaches are…
Financial time series exhibit a number of interesting properties that are difficult to explain with simple models. These properties include fat-tails in the distribution of price fluctuations (or returns) that are slowly removed at longer…
We model investor heterogeneity using different required returns on an investment and evaluate the impact on the valuation of an investment. By assuming no disagreement on the cash flows, we emphasize how risk preferences in particular, but…
In this paper, we derive the price of a European call option of an asset following a normal process assuming stochastic volatility. The volatility is assumed to follow the Cox Ingersoll Ross (CIR) process. We then use the fast Fourier…
An efficient computational algorithm to price financial derivatives is presented. It is based on a path integral formulation of the pricing problem. It is shown how the path integral approach can be worked out in order to obtain fast and…
An arbitrage strategy allows a financial agent to make certain profit out of nothing, i.e., out of zero initial investment. This has to be disallowed on economic basis if the market is in equilibrium state, as opportunities for riskless…
In this chapter we review some recent results on the dynamics of price formation in financial markets and its relations with the efficient market hypothesis. Specifically, we present the limit order book mechanism for markets and we…
In the context of a general semimartingale model of a complete market, we aim at answering the following question: How much is an investor willing to pay for learning some inside information that allows to achieve arbitrage? If such a value…
Conditional Asian options are recent market innovations, which offer cheaper and long-dated alternatives to regular Asian options. In contrast with payoffs from regular Asian options which are based on average asset prices, the payoffs from…
This paper deals with the problem of discrete-time option pricing by the mixed fractional version of Merton model with transaction costs. By a mean-self-financing delta hedging argument in a discrete-time setting, a European call option…
Subordination is an often used stochastic process in modeling asset prices. Subordinated Levy price processes and local volatility price processes are now the main tools in modern dynamic asset pricing theory. In this paper, we introduce…
Using theory and experiments, this paper shows that the difficulty of making tradeoffs offers a parsimonious explanation for a wide range of behavioral phenomena. We develop a model of imprecise comparisons applicable to multiattribute,…
An agent-based model for financial markets has to incorporate two aspects: decision making and price formation. We introduce a simple decision model and consider its implications in two different pricing schemes. First, we study its…
In this paper, we derive a temporal arbitrage policy for storage via reinforcement learning. Real-time price arbitrage is an important source of revenue for storage units, but designing good strategies have proven to be difficult because of…
In recent years, a wide range of investment models have been created using artificial intelligence. Automatic trading by artificial intelligence can expand the range of trading methods, such as by conferring the ability to operate 24 hours…