Johansen and Sornette proposes that the crash has fundamentally an endogenous origin and exogenous shocks only serve as triggering factors. This endogenous force is shown in price as power law log-periodicity (PLLP) signature prior to a crash. We estimate the highly nonlinear model developed by them using a hybrid approach which combines scatter search, genetic adaptor and tabu search. The mode...

Models with i.i.d. returns and perfect liquidity (e.g., Merton (1971)) suggest that after a stock price crash, investors should buy more stock. However, many investors sell stock to buy safe assets after a market crash (a “flight-to-quality”), even when market liquidity has significantly worsened. In this paper, we propose a tractable and flexible portfolio selection model where market crashes ...

This paper presents a model for option pricing in markets that experience financial crashes. The stochastic differential equation (SDE) of stock price dynamics is coupled to a post-crash market index. The resultant SDE is shown to have stock price and time dependent volatility. The partial differential equation (PDE) for call prices is derived using risk-neutral pricing. European call prices ar...

Stock price crash risk is an unfavourable event in business that may decrease the shareholder’s wealth and hurt stability capital market growth. This study investigates impact of audit quality measured by auditor industry specialization (AIS), tenure (AT), committee independence (ACI), firm size(AFS)) on stock value (measured down-to-up unpredictability) for a sample 70 non-financial firms list...