Related papers: A Bayesian viewpoint on the price formation proces…
A new framework for asset price dynamics is introduced in which the concept of noisy information about future cash flows is used to derive the price processes. In this framework an asset is defined by its cash-flow structure. Each cash flow…
We present a model for price dynamics in the Automated Market Makers (AMM) setting. Within this framework, we propose a reference market price following a geometric Brownian motion. The AMM price is constrained by upper and lower bounds,…
We review the evidence that the erratic dynamics of markets is to a large extent of endogenous origin, i.e. determined by the trading activity itself and not due to the rational processing of exogenous news. In order to understand why and…
We develop a hierarchical Bayesian dynamic game for competitive inventory and pricing under incomplete information. Two firms repeatedly choose order quantities and prices while facing two layers of uncertainty: unknown market demand and…
This paper presents a model of costly information acquisition where decision-makers can choose whether to elaborate information superficially or precisely. The former action is costless, while the latter entails a processing cost. Within…
We explore how dynamic entry deterrence operates through feedback strategies in markets experiencing stochastic demand fluctuations. The incumbent firm, aware of its own cost structure, can deter a potential competitor by strategically…
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…
The Black-Litterman model is a framework for incorporating forward-looking expert views in a portfolio optimization problem. Existing work focuses almost exclusively on single-period problems with the forecast horizon matching that of the…
A new framework for asset pricing based on modelling the information available to market participants is presented. Each asset is characterised by the cash flows it generates. Each cash flow is expressed as a function of one or more…
Markets have internal dynamics leading to excess volatility and other phenomena that are difficult to explain using rational expectations models. This paper studies these using a nonequilibrium price formation rule, developed in the context…
We use standard physics techniques to model trading and price formation in a market under the assumption that order arrival and cancellations are Poisson random processes. This model makes testable predictions for the most basic properties…
We compare the predictions of the stationary Kyle model, a microfounded multi-step linear price impact model in which market prices forecast fundamentals through information encoded in the order flow, with those of the propagator model, a…
We propose a dynamical model of price formation on a spatial market where sellers and buyers are placed on the nodes of a graph, and the distribution of the buyers depends on the positions and prices of the sellers. We find that, depending…
This paper introduces a formal method to model the level of demand on control when executing cognitive processes. The cost of cognitive control is parsed into an intensity cost which encapsulates how much additional input information is…
Prediction markets are often described as mechanisms that ``aggregate information'' into prices, yet the mapping from dispersed private information to observed market histories is typically noisy, endogenous, and shaped by heterogeneous and…
In this paper, we propose a minimal model beyond geometric Brownian motion that aims to describe price actions with market inefficiency. From simple financial theory considerations, we arrive at a simple two-variable hidden Markovian time…
The binary information collects all those events that may or may not occur. With this kind of variables, a large amount of information can be captured, in particular, about financial assets and their future trends. In our paper, we assume…
Price changes are induced by aggressive market orders in stock market. We introduce a bivariate marked Hawkes process to model aggressive market order arrivals at the microstructural level. The order arrival intensity is marked by an…
We introduce a multivariate Hawkes process that accounts for the dynamics of market prices through the impact of market order arrivals at microstructural level. Our model is a point process mainly characterized by 4 kernels associated with…
Regression plays a key role in many research areas and its variable selection is a classic and major problem. This study emphasizes cost of predictors to be purchased for future use, when we select a subset of them. Its economic aspect is…