Related papers: Speculative trading: the price multiplier effect
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 develop a theory of bid and ask price dynamics where the two prices form due to interaction of buy and sell orders. In this model the two prices are represented by eigenvalues of a 2x2 price operator corresponding to "bid" and "ask"…
We introduce an agent-based model, in which agents set their prices to maximize profit. At steady state the market self-organizes into three groups: excess producers, consumers and balanced agents, with prices determined by their own…
We present a variation of the well-known binomial model of asset prices. This variation incorporates a bound to short-selling, inspired by a model from Gunduz Caginalp[2]. We formalize this model and prove a formula for all the moments of…
Empirical evidence suggests that even the most competitive markets are not strictly efficient. Price histories can be used to predict near future returns with a probability better than random chance. Many markets can be considered as {\it…
Prediction markets are long known for prediction accuracy. This study systematically explores the fundamental properties of prediction markets, addressing questions about their information aggregation process and the factors contributing to…
Market timing is an investment technique that tries to continuously switch investment into assets forecast to have better returns. What is the likelihood of having a successful market timing strategy? With an emphasis on modeling…
A new multiagent model of the stock market is formulated that contains four states in which the agents may be located. Next, the model is reformulated in the language of the functional integral containing fluctuations of prices and…
Recent studies have revealed a number of striking dependence patterns in high frequency stock price dynamics characterizing probabilistic interrelation between two consequent price increments x (push) and y (response) as described by the…
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 propose a probabilistic framework for pricing derivatives, which acknowledges that information and beliefs are subjective. Market prices can be translated into implied probabilities. In particular, futures imply returns for these implied…
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…
A seller offers an asset in a decentralised market. Buyers have private signals about their common value. I study whether the market becomes allocatively more efficient with (i) more buyers, (ii) better-informed buyers. Both increase the…
Using simple particle models of limit order markets, we argue that mid-term over-diffusive price behaviour is inherent to the very nature of these markets. Several rules for rate changes are considered. We obtain analytical results for…
A model of open economics composed of producers and speculators is investigated by numerical simulations. The capital flows from the environment to the producers and from them to the speculators. The price fluctuations are suppressed by the…
We give a new predictive mathematical model for macroeconomics, which deals specifically with asset prices and earnings fluctuations, in the presence of a dynamic economy involving mergers, acquisitions, and hostile takeovers. Consider a…
It is usually assumed that stock prices reflect a balance between large numbers of small individual sellers and buyers. However, over the past fifty years mutual funds and other institutional shareholders have assumed an ever increasing…
We propose a class of Markovian agent based models for the time evolution of a share price in an interactive market. The models rely on a microscopic description of a market of buyers and sellers who change their opinion about the stock…
This paper reviews some of the phenomenological models which have been introduced to incorporate the scaling properties of financial data. It also illustrates a microscopic model, based on heterogeneous interacting agents, which provides a…
Trading frictions are stochastic. They are, moreover, in many instances fast-mean reverting. Here, we study how to optimally trade in a market with stochastic price impact and study approximations to the resulting optimal control problem…