Related papers: Kyle's Model with Stochastic Liquidity
For deterministic continuous time nonlinear control systems, epsilon-practical stabilization entropy and practical stabilization entropy are introduced. Here the rate of attraction is specified by a KL-function. Upper and lower bounds for…
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…
This paper develops a strategic model of trade between two regions in which, depending on the relation among output, financial resources and transportation costs, the adjustment of prices towards an equilibrium is studied. We derive…
Empirical data reveals that the liquidity flow into the order book (depositions, cancellations andmarket orders) is influenced by past price changes. In particular, we show that liquidity tends todecrease with the amplitude of past…
Non-equilibrium noise is characterized as noise realizations where external agitations disrupt the harmonic equilibrium of Brownian motion. Excitations in a particle's random walk into a so-called L\'evy flight changes the distribution of…
We present two models for incorporating the total effect of market microstructure noise into dynamic pricing of assets and European options. The first model is developed under a Black-Scholes-Merton, continuous-time framework. The second…
Pulse stabilization of cycles with Prediction-Based Control including noise and stochastic stabilization of maps with multiple equilibrium points is analyzed for continuous but, generally, non-smooth maps. Sufficient conditions of global…
I show that if the capital accumulation dynamics is stochastic a new term, in addition to that given by accounting prices, has to be introduced in order to derive a correct estimate of the genuine wealth of an economy. In a simple model…
We studied non-dynamical stochastic resonance for the number of trades in the stock market. The trade arrival rate presents a deterministic pattern that can be modeled by a cosine function perturbed by noise. Due to the nonlinear…
We introduce a new stochastic duration model for transaction times in asset markets. We argue that widely accepted rules for aggregating seemingly related trades mislead inference pertaining to durations between unrelated trades: while any…
Subordination is an often used stochastic process in modeling asset prices. Subordinated Levy price processes and local volatility price processes are now the main tools in modern dynamic asset pricing theory. In this paper, we introduce…
The market weight of a stock is its capitalization (cap) divided by the total market cap. Rank these weights from top to bottom. The capital distribution curve is a plot of weights versus ranks. For the US stock market, it is linear on a…
We introduce Coarse Q-learning (CQL), a reinforcement-learning model for bandit problems with stochastically varying menus. Alternatives are exogenously partitioned into similarity classes, and feedback from sampled alternatives is pooled…
In this paper, we establish sample path large and moderate deviation principles for log-price processes in Gaussian stochastic volatility models, and study the asymptotic behavior of exit probabilities, call pricing functions, and the…
The Black-Scholes implied volatility skew at the money of SPX options is known to obey a power law with respect to the time-to-maturity. We construct a model of the underlying asset price process which is dynamically consistent to the power…
Stock price change in financial market occurs through transactions in analogy with diffusion in stochastic physical systems. The analysis of price changes in real markets shows that long-range correlations of price fluctuations largely…
It is well known that the probability distribution of high-frequency financial returns is characterized by a leptokurtic, heavy-tailed shape. This behavior undermines the typical assumption of Gaussian log-returns behind the standard…
We develop a tractable equilibrium model for price formation in intraday electricity markets in the presence of intermittent renewable generation. Using stochastic control theory, we identify the optimal strategies of agents with market…
We study the temporal fluctuations in time-dependent stock prices (both individual and composite) as a stochastic phenomenon using general techniques and methods of nonequilibrium statistical mechanics. In particular, we analyze stock price…
This paper examines the cycling behavior of a deterministic and a stochastic version of the economic interpretation of the Lotka-Volterra model, the Goodwin model. We provide a characterization of orbits in the deterministic highly…