We study optimal investment problem for a diffusion market consisting of a finite number of risky assets (for example, bonds, stocks and options). Risky assets evolution is described by Itô’s equation, and the number of risky assets can be larger than the number of driving Brownian motions. We assume that the risk-free rate, the appreciation rates and the volatility of the stocks are all random...

Asset pricing formulas generated from representative agent models help in computing the fundamental values of assets that investors plan to hold forever. In contrast, in an economy with heterogeneous agents and active trading, stock prices will persistently deviate from the expected fundamental value even without introducing any explosive bubbles. Particularly, the introduction of heterogeneous...

K-means clustering algorithm has been used to classify patterns of Japanese candlesticks which accompany the prices of several assets registered in the Warsaw stock exchange (GPW). It has been found that the trend reversals seem to be preceded by specific combinations of candlesticks with notable frequency. Surprisingly, the same patterns appear in both bullish and bearish trend reversals. The ...

We develop a new class of artificial stock market that apply general equilibrium price clearing. Our model is the first multi-asset artificial stock market to use exogenously generated dividends from a geometric vector autoregressive model and is therefore the first truly multi-asset artificial stock market. Our model does not require the concept of a risk free asset and agents are able to form...

Daily returns of nancial assets are frequently found to exhibit positive autocor-relation at lag 1. When specifying a linear AR(1) conditional mean, one may ask how this predictability aaects option prices. We investigate the dependence of option prices on autoregressive dynamics under stylized facts of stock returns, i.e., conditional heteroskedasticity, leverage eeect, and conditional leptoku...

This paper examines how stock prices are affected by research and development activities for Danish firms for the period, 1989 to 2002. Both through analysis of portfolios and regression analysis, the role of R&D assets is considered along with a number of other fundamental factors, such as size, the book to market ratio, leverage and the CAPM beta. There is at best a weak indication that R&D i...

For many kinds of assets, the growth rate of the real asset stock is a nonlinear function of the economic owner’s decision whether to invest or extract the asset. Examples within the economy are primarily biological assets, both privately owned (such as those found in aquaculature and agriculture) and publicly owned or regulated (such as fish stocks, and in some case, timber stocks.) Optimal ex...

Stock options are usually sold in bundles of 100 units, and their price can be quoted either per unit or per bundle. In this paper, the effect of different methods of quoting financial asset prices on the subjective value of a contract was examined experimentally. In particular, we examined differences in subjects’ Willingness-To-Pay (WTP) and Willingness-ToAccept (WTA) for financial assets dep...

In this paper we provide a technique for pricing exotics relative to the instruments used for hedging them, while making minimal assumptions about price processes. The issue we address is this: given the prices of a set of hedging assets (such as a stock and a set of traded European options on that stock), what restrictions can be placed on the price of an exotic option? The question has a natu...

The 2008 stock market crash raises concerns about retirement security, especially since the increased prevalence of 401(k) and similar retirement saving plans means that more Americans are now stakeholders in the equity market than in the past. Using a dynamic microsimulation model, this paper explores the ability of alternate future stock market scenarios to restore retirement assets. The auth...