Related papers: Moving averages and markets inefficiency
We consider a market where a finite number of players trade an asset whose supply is a stochastic process. The price formation problem consists of finding a price process that ensures that when agents act optimally to minimize their trading…
Metastability is a phenomenon observed in stochastic systems which stay in a false-equilibrium within a region of its state space until the occurrence of a sequence of rare events that leads to an abrupt transition to a different region.…
In setting up a stochastic description of the time evolution of a financial index, the challenge consists in devising a model compatible with all stylized facts emerging from the analysis of financial time series and providing a reliable…
This paper suggests that business cycles may be a manifestation of coupled real economy and stock market dynamics and describes a mechanism that can generate economic fluctuations consistent with observed business cycles. To this end, we…
Estimating and controlling large risks has become one of the main concern of financial institutions. This requires the development of adequate statistical models and theoretical tools (which go beyond the traditionnal theories based on…
We present a mathematical model of a market with $m$ shares traded across $n$ investor groups, each one with similar motivations and trading strategies. The market of each asset consists of a fixed amount of cash and shares (no additions…
The accurate prediction of short-term electricity prices is vital for effective trading strategies, power plant scheduling, profit maximisation and efficient system operation. However, uncertainties in supply and demand make such…
Financial market is an example of complex system, which is characterized by a highly intricate organization and the emergence of collective behavior. In this paper, we quantify this emergent dynamics in the financial market by using…
This papers addresses the stock option pricing problem in a continuous time market model where there are two stochastic tradable assets, and one of them is selected as a num\'eraire. It is shown that the presence of arbitrarily small…
This paper studies an equity market of stochastic dimension, where the number of assets fluctuates over time. In such a market, we develop the fundamental theorem of asset pricing, which provides the equivalence of the following statements:…
We consider a continuous-time game-theoretic model of an investment market with short-lived assets and endogenous asset prices. The first goal of the paper is to formulate a stochastic equation which determines wealth processes of investors…
In Part II of this paper, we concentrate our analysis on the price dynamical model with the moving average rules developed in Part I of this paper. By decomposing the excessive demand function, we reveal that it is the interplay between…
In this paper we seek to demonstrate the predictability of stock market returns and explain the nature of this return predictability. To this end, we introduce investors with different investment horizons into the news-driven, analytic,…
We discuss how minimal financial market models can be constructed by bridging the gap between two existing, but incomplete, market models: a model in which a population of virtual traders make decisions based on common global information…
We consider a stochastic game-theoretic model of an investment market in continuous time with short-lived assets and study strategies, called survival, which guarantee that the relative wealth of an investor who uses such a strategy remains…
We consider a financial market where the asset price follows a fractional Brownian motion. We introduce a family of investment strategies, and quantify profit possibilities for both persistent and antipersistant markets.
We consider the randomness of market trade as the origin of price and return stochasticity. We look at time series of trade values and volumes as random variables during the averaging interval {\Delta} and describe the dependences of…
We present a new microscopic stochastic model for an ensemble of interacting investors that buy and sell stocks in discrete time steps via limit orders based on individual forecasts about the price of the stock. These orders determine the…
We introduce a class of randomly time-changed fast mean-reverting stochastic volatility models and, using spectral theory and singular perturbation techniques, we derive an approximation for the prices of European options in this setting.…
In this paper we study the price dynamics in a simple model of financial markets with heterogeneous agents. We concentrate on how increases in the total number of active traders influences fluctuations of asset prices. We find that a…