Related papers: Resolving asset pricing puzzles using price-impact
The paper studies pricing of insurance products focusing on the pricing of annuities under uncertainty. This pricing problem is crucial for financial decision making and was studied intensively, however, many open questions still remain. In…
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…
We prove the existence of an equilibrium in a model with transaction costs and price impact where two agents are incentivized to trade towards a target. The two types of frictions -- price impact and transaction costs -- lead the agents to…
The article's aim is to provide a solution to the equity premium puzzle with a derived model. The derived model which depends on Consumption Capital Asset Pricing Model gives a solution to the puzzle with the values of coefficient of…
Financial markets are a typical example of complex systems where interactions between constituents lead to many remarkable features. Here, we show that a pairwise maximum entropy model (or auto-logistic model) is able to describe switches…
We seek to utilize the nonextensive statistics to the microscopic modeling of the interacting many-investor dynamics that drive the price changes in a market. The statistics of price changes are known to be fit well by the Students-T and…
We introduce an autoregressive-type model of prices in financial market taking into account the self-modulation effect. We find that traders are mainly using strategies with weighted feedbacks of past prices. These feedbacks are responsible…
We extend a linear version of the liquidity risk model of Cetin et al. (2004) to allow for price impacts. We show that the impact of a market order on prices depends on the size of the transaction and the level of liquidity. We obtain a…
We consider a market model that consists of financial investors and producers of a commodity. Producers optionally store some production for future sale and go short on forward contracts to hedge the uncertainty of the future commodity…
We introduce a new class of combinatorial markets in which agents have covering constraints over resources required and are interested in delay minimization. Our market model is applicable to several settings including scheduling, cloud…
We study a large economy in which firms cannot compute exact solutions to the non-linear equations that characterize the equilibrium price at which they can sell future output. Instead, firms use polynomial expansions to approximate prices.…
It is known that the impact of transactions on stock price (market impact) is a concave function of the size of the order, but there exists little quantitative theory that suggests why this is so. I develop a quantitative theory for the…
This paper considers utility indifference valuation of derivatives under model uncertainty and trading constraints, where the utility is formulated as an additive stochastic differential utility of both intertemporal consumption and…
This paper provides a general characterization of subgame perfect equilibria for strategic timing problems, where two firms have the (real) option to make an irreversible investment. Profit streams are uncertain and depend on the market…
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…
A market model with $d$ assets in discrete time is considered where trades are subject to proportional transaction costs given via bid-ask spreads, while the existence of a num\`eraire is not assumed. It is shown that robust no arbitrage…
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,…
We investigate the optimal investment-reinsurance problem for insurance company with partial information on the market price of the risk. Through the use of filtering techniques we convert the original optimization problem involving…
We consider models of financial markets in which all parties involved find incentives to participate. Strategies are evaluated directly by their virtual wealths. By tuning the price sensitivity and market impact, a phase diagram with…
We study a discrete-time consumption-based capital asset pricing model under expectations-based reference-dependent preferences. More precisely, we consider an endowment economy populated by a representative agent who derives utility from…