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This note explores the consequences of nonlinear price impact functions on price dynamics within the chartist-fundamentalist framework. Price impact functions may be nonlinear with respect to trading volume. As indicated by recent empirical…
This paper studies the switching of trading strategies and its effect on the market volatility in a continuous double auction market. We describe the behavior when some uninformed agents, who we call switchers, decide whether or not to pay…
A common assumption in financial engineering is that the market price for any derivative coincides with an objectively defined risk-neutral price - a plausible assumption only if traders collectively possess objective knowledge about the…
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…
Strategic voting, or manipulation, is the process by which a voter misrepresents his preferences in an attempt to elect an outcome that he considers preferable to the outcome under sincere voting. It is generally agreed that manipulation is…
First-price auctions have many desirable properties, including uniquely possessing some, like credibility. However, first-price auctions are also inherently non-truthful, and non-truthfulness may result in instability and inefficiencies.…
This paper investigates the effects of the "uptick rule" (a short selling regulation formally known as rule 10a-1) by means of a simple stock market model, based on the ARED (adaptive rational equilibrium dynamics) modeling framework, where…
It is a common belief that the behavior of shareholders depends upon the direction of price fluctuations: if prices increase they buy, if prices decrease they sell. That belief, however, is more based on ``common sense'' than on facts. In…
Forecasting stock market prices remains a complex challenge for traders, analysts, and engineers due to the multitude of factors that influence price movements. Recent advancements in artificial intelligence (AI) and natural language…
Price dynamics is analyzed in terms of a model which includes the possibility of effective forces due to trend followers or trend adverse strategies. The method is tested on the data of a minority-majority model and indeed it is capable of…
In modern capital market the price of a stock is often considered to be highly volatile and unpredictable because of various social, financial, political and other dynamic factors. With calculated and thoughtful investment, stock market can…
Equity options are known to be notoriously difficult to price accurately, and even with the development of established mathematical models there are many assumptions that must be made about the underlying processes driving market movements.…
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…
This study investigates the prevention of market manipulation using a price-impact model of financial market trading as a linear system. First, I define a trading game between speculators such that they implement a manipulation trading…
Manipulation is a common concern in many domains, such as social media, advertising, and chatbots. As AI systems mediate more of our interactions with the world, it is important to understand the degree to which AI systems might manipulate…
In this paper, we describe a novel agent-based approach for modelling the transaction cost of buying or selling an asset in financial markets, e.g., to liquidate a large position as a result of a margin call to meet financial obligations.…
A ubiquitous learning problem in today's digital market is, during repeated interactions between a seller and a buyer, how a seller can gradually learn optimal pricing decisions based on the buyer's past purchase responses. A fundamental…
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…
Many studies assume stock prices follow a random process known as geometric Brownian motion. Although approximately correct, this model fails to explain the frequent occurrence of extreme price movements, such as stock market crashes. Using…
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…