Related papers: Resolving asset pricing puzzles using price-impact
In a continuous time stochastic economy, this paper considers the problem of consumption and investment in a financial market in which the representative investor exhibits a change in the discount rate. The investment opportunities are a…
We consider the problem of optimal investment and consumption in a class of multidimensional jump-diffusion models in which asset prices are subject to mutually exciting jump processes. This captures a type of contagion where each downward…
A solution to a portfolio optimization problem is always conditioned by constraints on the initial capital and the price of the available market assets. If a risk neutral measure is known, then the price of each asset is the discounted…
This work solves the equilibrium price formation problem for the risky stock by combining mean-field game theory with the binomial tree framework, adapting the classic approach of Cox, Ross \& Rubinstein. For agents with exponential and…
We study the pricing and hedging of European spread options on correlated assets when, in contrast to the standard framework and consistent with imperfect liquidity markets, the trading in the stock market has a direct impact on stocks…
Financial markets provide a natural quantitative lab for understanding some of the most advanced human behaviours. Among them is the use of mathematical tools known as financial instruments. Besides money, the two most fundamental financial…
We note a simple mechanism that may at least partially resolve several outstanding economic puzzles, including why the cyclically adjusted price to earnings ratio of the S&P 500 index has been oddly high for the past two decades, why gains…
We define what "Price Impact" means, and how it is measured and modelled in the recent literature. Although this notion seems to convey the idea of a forceful and intuitive mechanism, we discuss why things might not be that simple.…
The problem of market clearing is to set a price for an item such that quantity demanded equals quantity supplied. In this work, we cast the problem of predicting clearing prices into a learning framework and use the resulting models to…
We study optimal proportional reinsurance and investment strategies for an insurance company which experiences both ordinary and catastrophic claims and wishes to maximize the expected exponential utility of its terminal wealth. We propose…
We consider an investor who is dynamically informed about the future evolution of one of the independent Brownian motions driving a stock's price fluctuations. With linear temporary price impact the resulting optimal investment problem with…
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…
When prices reflect all available information, they oscillate around an equilibrium level. This oscillation is the result of the temporary market impact caused by waves of buyers and sellers. This price behavior can be approximated through…
We studied the behavior and variation of utility between the two conflicting players in a closed Nash-equilibrium loop. Our modeling approach also captured the nexus between optimal premium strategizing and firm performance using the…
This paper studies the topic of cost-efficiency in incomplete markets. A payoff is called cost-efficient if it achieves a given probability distribution at some given investment horizon with a minimum initial budget. Extensive literature…
In settings where full incentive-compatibility is not available, such as core-constraint combinatorial auctions and budget-balanced combinatorial exchanges, we may wish to design mechanisms that are as incentive-compatible as possible. This…
We obtain an exact necessary and sufficient condition for the existence and uniqueness of equilibrium asset prices in infinite horizon, discrete-time, arbitrage free environments. Through several applications we show how the condition…
A public decision-making problem consists of a set of issues, each with multiple possible alternatives, and a set of competing agents, each with a preferred alternative for each issue. We study adaptations of market economies to this…
We consider a market where a finite number of players trade an asset whose supply is a stochastic process. The price formation problem consists of finding a price process that ensures that when agents act optimally to minimize their trading…
In this article, we consider the problem of equilibrium price formation in an incomplete securities market consisting of one major financial firm and a large number of minor firms. They carry out continuous trading via the securities…