Related papers: Open Markets
In an incomplete continuous-time securities market with uncertainty generated by Brownian motions, we derive closed-form solutions for the equilibrium interest rate and market price of risk processes. The economy has a finite number of…
A representative investor generates realistic and complex security price paths by following this trading strategy: if, a few ticks ago, the market asset had two consecutive upticks or two consecutive downticks, then sell, and otherwise buy.…
We show, by studying in detail the market prices of options on liquid markets, that the market has empirically corrected the simple, but inadequate Black-Scholes formula to account for two important statistical features of asset…
The downside risk of a portfolio of (equity)assets is generally substantially higher than the downside risk of its components. In particular in times of crises when assets tend to have high correlation, the understanding of this difference…
As markets have digitized, the number of tradable products has skyrocketed. Algorithmically constructed portfolios of these assets now dominate public and private markets, resulting in a combinatorial explosion of tradable assets. In this…
In stochastic portfolio theory, a relative arbitrage is an equity portfolio which is guaranteed to outperform a benchmark portfolio over a finite horizon. When the market is diverse and sufficiently volatile, and the benchmark is the market…
Decentralized prediction markets (DePMs) allow open participation in event-based wagering without fully relying on centralized intermediaries. We review the history of DePMs which date back to 2011 and includes hundreds of proposals.…
The paper predicts an Efficient Market Property for the equity market, where stocks, when denominated in units of the growth optimal portfolio (GP), have zero instantaneous expected returns. Well-diversified equity portfolios are shown to…
Model uncertainty is a type of inevitable financial risk. Mistakes on the choice of pricing model may cause great financial losses. In this paper we investigate financial markets with mean-volatility uncertainty. Models for stock markets…
We consider a continuous-time game-theoretic model of an investment market with short-lived assets and endogenous asset prices. The first goal of the paper is to formulate a stochastic equation which determines wealth processes of investors…
Under very general conditions, we construct a micro-macro model for closed economy with a large number of heterogeneous agents. By introducing both financial capital (i.e. valued capital---- equities of firms) and physical capital (i.e.…
Financial economic models often assume that investors know (or agree on) the fundamental value of the shares of the firm, easing the passage from the individual to the collective dimension of the financial system generated by the Share…
In this paper, we consider the problem of optimization of a portfolio consisting of securities. An investor with an initial capital, is interested in constructing a portfolio of securities. If the prices of securities change, the investor…
We contrast Arbitrage Pricing Theory (APT), the theoretical basis for the development of financial instruments, with a dynamical picture of an interacting market, in a simple setting. The proliferation of financial instruments apparently…
Cryptocurrency refers to a type of digital asset that uses distributed ledger, or blockchain, technology to enable a secure transaction. Although the technology is widely misunderstood, many central banks are considering launching their own…
In this paper we define the notion of an open Markov process. An open Markov process is a generalization of an ordinary Markov process in which populations are allowed to flow in and out of the system at certain boundary states. We show…
The rise of AI has been rapid, becoming a leading sector for investment and promising disruptive impacts across the economy. Within the critical analysis of the economic impacts, AI has been aligned to the critical literature on data power…
Associating stock mechanics to real economy, in terms of volume, number of transactions, and cost, i.e. money flow for shares, we obtained the fundamental laws of stock mechanics.
We develop from basic economic principles a continuous-time model for a large investor who trades with a finite number of market makers at their utility indifference prices. In this model, the market makers compete with their quotes for the…
We study dynamics of a simulated world with stock and money, driven by the externally given processes which we refer to as sentiments. The considered sentiments influence the buy/sell stock trading attitude, the perceived price uncertainty,…