Related papers: Price, Volatility and the Second-Order Economic Th…
The Capital Asset Pricing Model (CAPM) relates a well-diversified stock portfolio to a benchmark portfolio. We insert size effect in CAPM, capturing the observation that small stocks have higher risk and return than large stocks, on…
The literature on the Price of Anarchy (PoA) of simple auctions employs a no-overbidding assumption but has completely overlooked the no-underbidding phenomenon, which is evident in empirical studies on variants of the second price auction.…
We study the range of prices at which a rational agent should contemplate transacting a financial contract outside a given securities market. Trading is subject to nonproportional transaction costs and portfolio constraints and full…
We propose a probabilistic framework for pricing derivatives, which acknowledges that information and beliefs are subjective. Market prices can be translated into implied probabilities. In particular, futures imply returns for these implied…
In this paper we introduce a general method for estimating the quadratic covariation of one or more spot parameters processes associated with continuous time semimartingales. This estimator is applicable to a wide range of spot parameter…
This paper aims to provide a simple modelling of speculative bubbles and derive some quantitative properties of its dynamical evolution. Starting from a description of individual speculative behaviours, we build and study a second order…
Electricity price forecasting has become a critical tool for decision-making in energy markets, particularly as the increasing penetration of renewable energy introduces greater volatility and uncertainty. Historically, research in this…
Employing a generalized definition of Pratt (1964) and Arrow's (1965, 1971) probability premium, we introduce a new concept of attitude towards probability. We illustrate in a problem of risk sharing that whether attitude towards…
In this paper we study the distribution of a product of two continuous random variables. We derive formulas for the probability density functions and moments of the products of the Gaussian, log-normal, Student's t and Pareto random…
We present a methodology for representing probabilistic relationships in a general-equilibrium economic model. Specifically, we define a precise mapping from a Bayesian network with binary nodes to a market price system where consumers and…
We study the price dynamics of 65 stocks from the Dow Jones Composite Average from 1973 until 2014. We show that it is possible to define a Daily Market Volatility $\sigma(t)$ which is directly observable from data. This quantity is usually…
This article is the second one in a series on the use of scaling invariance in finance. In the first article (cond-mat/9906048), we introduced a new formalism for the pricing of derivative securities, which focusses on tradable objects…
In the past couple of years, various approaches to representing and quantifying different types of predictive uncertainty in machine learning, notably in the setting of classification, have been proposed on the basis of second-order…
Recent studies concerning the point electricity price forecasting have shown evidence that the hourly German Intraday Continuous Market is weak-form efficient. Therefore, we take a novel, advanced approach to the problem. A probabilistic…
We amend and extend the Chiarella model of financial markets to deal with arbitrary long-term value drifts in a consistent way. This allows us to improve upon existing calibration schemes, opening the possibility of calibrating individual…
This article provides a simple explanation of the asymptotic concavity of the price impact of a meta-order via the microstructural properties of the market. This explanation is made more precise by a model in which the local relationship…
This paper explores the application and significance of the second-order Esscher pricing model in option pricing and risk management. We split the study into two main parts. First, we focus on the constant jump diffusion (CJD) case,…
In the information-based approach to asset pricing the market filtration is modelled explicitly as a superposition of signals concerning relevant market factors and independent noise. The rate at which the signal is revealed to the market…
We consider the pricing problem related to payoffs that can have discontinuities of polynomial growth. The asset price dynamic is modeled within the Black and Scholes framework characterized by a stochastic volatility term driven by a…
The literature provides strong evidence that stock prices can be predicted from past price data. Principal component analysis (PCA) is a widely used mathematical technique for dimensionality reduction and analysis of data by identifying a…