Related papers: The Inelastic Market Hypothesis: A Microstructural…
A simple Hawkes model have been developed for the price tick structure dynamics incorporating market microstructure noise and trade clustering. In this paper, the model is extended with random mark to deal with more realistic price tick…
The fundamental theorem behind financial markets is that stock prices are intrinsically complex and stochastic. One of the complexities is the volatility associated with stock prices. Volatility is a tendency for prices to change…
We formulate and analyze an inverse problem using derivatives prices to obtain an implied filtering density on volatility's hidden state. Stochastic volatility is the unobserved state in a hidden Markov model (HMM) and can be tracked using…
This paper proposes a theory of stock market predictability patterns based on a model of heterogeneous beliefs. In a discrete finite time framework, some agents receive news about an asset's fundamental value through a noisy signal. The…
In speculative markets, risk-free profit opportunities are eliminated by traders exploiting them. Markets are therefore often described as "informationally efficient", rapidly removing predictable price changes, and leaving only residual…
We introduce a stochastic price model where, together with a random component, a moving average of logarithmic prices contributes to the price formation. Our model is tested against financial datasets, showing an extremely good agreement…
One approach to the analysis of stochastic fluctuations in market prices is to model characteristics of investor behaviour and the complex interactions between market participants, with the aim of extracting consequences in the aggregate.…
We construct an equilibrium for the continuous time Kyle's model with stochastic liquidity, a general distribution of the fundamental price, and correlated stock and volatility dynamics. For distributions with positive support, our…
In this paper we provide a comprehensive analysis of a structural model for the dynamics of prices of assets traded in a market originally proposed in [1]. The model takes the form of an interacting generalization of the geometric Brownian…
Implied volatility IV is a key metric in financial markets, reflecting market expectations of future price fluctuations. Research has explored IV's relationship with moneyness, focusing on its connection to the implied Hurst exponent H. Our…
There are two possible ways of interpreting the seemingly stochastic nature of financial markets: the Efficient Market Hypothesis (EMH) and a set of stylized facts that drive the behavior of the markets. We show evidence for some of the…
We introduce an event based framework of directional changes and overshoots to map continuous financial data into the so-called Intrinsic Network - a state based discretisation of intrinsically dissected time series. Defining a method for…
We consider a tick-by-tick model of price formation, in which buy and sell orders are modeled as self-exciting point processes (Hawkes process), similar to the one in [Bacry, Delattre, Hoffmann, Muzy, Modelling microstructure noise with…
Statistical properties of an order book and the effect they have on price dynamics were studied using the high-frequency NASDAQ Level II data. It was observed that the size distribution of marketable orders (transaction sizes) has power law…
Working on different aspects of algorithmic trading we empirically discovered a new market invariant. It links together the volatility of the instrument with its traded volume, the average spread and the volume in the order book. The…
Decisions taken in our everyday lives are based on a wide variety of information so it is generally very difficult to assess what are the strategies that guide us. Stock market therefore provides a rich environment to study how people take…
Large variations in stock prices happen with sufficient frequency to raise doubts about existing models, which all fail to account for non-Gaussian statistics. We construct simple models of a stock market, and argue that the large…
This paper considers liquidity as an explanation for the positive association between expected idiosyncratic volatility (IV) and expected stock returns. Liquidity costs may affect the stock returns, through bid-ask bounce and other…
We propose a method to infer lead-lag networks of traders from the observation of their trade record as well as to reconstruct their state of supply and demand when they do not trade. The method relies on the Kinetic Ising model to describe…
The dynamics of a stock market with heterogeneous agents is discussed in the framework of a recently proposed spin model for the emergence of bubbles and crashes. We relate the log returns of stock prices to magnetization in the model and…