Related papers: Illiquid Financial Markets and Monetary Policy
This paper develops a theory of competitive equilibrium with indivisible goods based entirely on economic conditions on demand. The key idea is to analyze complementarity and substitutability between bundles of goods, rather than merely…
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 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…
In a model with no given probability measure, we consider asset pricing in the presence of frictions and other imperfections and characterize the property of coherent pricing, a notion related to (but much weaker than) the no arbitrage…
We consider portfolio selection under nonparametric $\alpha$-maxmin ambiguity in the neighbourhood of a reference distribution. We show strict concavity of the portfolio problem under ambiguity aversion. Implied demand functions are…
We construct an utility-based dynamic asset pricing model for a limit order market. The price is nonlinear in volume and subject to market impact. We solve an optimal hedging problem under the market impact and derive the dynamics of the…
The classical theory of efficient allocations of an aggregate endowment in a pure-exchange economy has hitherto primarily focused on the Pareto-efficiency of allocations, under the implicit assumption that transfers between agents are…
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…
This paper develops a dynamic equilibrium model of the insurance market that jointly characterizes insurers' underwriting, investment, recapitalization, and dividend policies under model uncertainty and financial frictions. Competitive…
We extend to the multi-asset case the framework of a discrete time model of a single asset financial market developed in Ghoulmie et al (2005). In particular, we focus on adaptive agents with threshold behavior allocating their resources…
Financial contagion has been widely recognized as a fundamental risk to the financial system. Particularly potent is price-mediated contagion, wherein forced liquidations by firms depress asset prices and propagate financial stress,…
"Fundamental theorem of asset pricing" roughly states that absence of arbitrage opportunity in a market is equivalent to the existence of a risk-neutral probability. We give a simple counterexample to this oversimplified statement. Prices…
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…
A money transfer involves a buyer and a seller. A buyer buys goods or services from a seller. The money the buyer decreases is the same as that the seller increases. At each time step, a pair of socially connected agents are selected and…
The decentralized international market of currency trading is a prototypical complex system having a highly heterogeneous composition. To understand the hierarchical structure relating the price movement of different currencies in the…
This is a review about financial dependencies which merges efforts in econophysics and financial economics during the last few years. We focus on the most relevant contributions to the analysis of asset markets' dependencies, especially…
The adoption of a "makeup" strategy is one of the proposals in the ongoing review of the Fed's monetary policy framework. Another suggestion, to avoid the zero lower bound, is a more active role for fiscal policy. We put together these…
Matching markets are of particular interest in computer science and economics literature as they are often used to model real-world phenomena where we aim to equitably distribute a limited amount of resources to multiple agents and…
The Walras approach to equilibrium focuses on the existence of market prices at which the total demands for goods are matched by the total supplies. Trading activities that might identify such prices by bringing agents together as potential…
A simple statement and accessible proof of a version of the Fundamental Theorem of Asset Pricing in discrete time is provided. Careful distinction is made between prices and cash flows in order to provide uniform treatment of all…