Financial Market Research Papers - Academia.edu (original) (raw)

Security prices contain valuable information that can be used to make a wide variety of economic decisions. To extract this information, a model is required that relates market prices to the desired information, and that ideally can be... more

Security prices contain valuable information that can be used to make a wide variety of economic decisions. To extract this information, a model is required that relates market prices to the desired information, and that ideally can be implemented using timely and low-cost methods. The authors explore two models applied to option prices to extract the risk-neutral probability density function (R-PDF) of the expected Can$/US$ exchange rate. Each of the two models extends the Black-Scholes model by using a mixture of two lognormals for the terminal distribution, instead of a single lognormal: one mixed lognormal imposes a specific stochastic process for the underlying asset, and the other does not. The contribution of the paper is to propose a simple methodology to build R-PDFs with a constant time to maturity in the absence of option prices for the maturity of interest. The authors apply this methodology and find that the two models provide similar results for the degree of uncertain...

We propose a model for stochastic formation of opinion clusters, modeled by an evolving network, and herd behavior to account for the observed fat-tail distribution in returns of financial-price data. The only parameter of the model is... more

We propose a model for stochastic formation of opinion clusters, modeled by an evolving network, and herd behavior to account for the observed fat-tail distribution in returns of financial-price data. The only parameter of the model is h, the rate of information dispersion per trade, which is a measure of herding behavior. For h below a critical h∗ the system displays a power-law distribution of the returns with exponential cutoff. However, for h>h∗ an increase in the probability of large returns is found and may be associated with the occurrence of large crashes.

Abstract: This paper is one chapter of the volume “Regulation and Economics” of the second edition of the Encyclopedia of Law and Economics. The authors review the economics of banking and financial markets and the regulatory response to... more

Abstract: This paper is one chapter of the volume “Regulation and Economics” of the second edition of the Encyclopedia of Law and Economics. The authors review the economics of banking and financial markets and the regulatory response to market failure. Market failure in finance depends on problems of information and externalities. Regulation addresses these problems through conduct of business rules

Price discovery is a principal function of financial markets. Yet, especially for dealership markets, financial economists know little about how prices are determined. In this paper I analyze the process of price discovery in the... more

Price discovery is a principal function of financial markets. Yet, especially for dealership markets, financial economists know little about how prices are determined. In this paper I analyze the process of price discovery in the multiple-dealer, interbank spot market for foreign exchange. I use DM/$ quotes to calculate interbank dealers’ “information shares,” their proportional contributions to the variance of innovations in the implicit, efficient exchange rate. These information shares are used to analyze relationships between price discovery and dealer characteristics. Unlike the U.S. equity markets, where regional exchanges contribute relatively little to price discovery, less-active interbank dealers play a large role, impounding most of the information into quotes. A pooled analysis of dealers’ intraday information shares indicates that the lower the relative bid-ask spread and the greater the number of regional foreign exchange branches, the higher is a dealer’s contribution...

We discuss two numerical techniques, based on the path integral approach described in a previous paper, for solving the stochastic equations underlying the financial markets: the path integral Monte Carlo, and the path integral... more

We discuss two numerical techniques, based on the path integral approach described in a previous paper, for solving the stochastic equations underlying the financial markets: the path integral Monte Carlo, and the path integral deterministic evaluation. In particular, we apply the latter to some specific financial problems: the pricing of a European option, a zero-coupon bond, a caplet, an American option, and a Bermudan swaption.

When this is written, the world holds its breath, waiting for the US to decide on a plan to save the countrys (and the worlds in prolongation) financial market. What and who will dictate growth and prosperity internationally in the future... more

When this is written, the world holds its breath, waiting for the US to decide on a plan to save the countrys (and the worlds in prolongation) financial market. What and who will dictate growth and prosperity internationally in the future are at stake. This is also a moment for developing deeper understanding of underlying spatial prerequisites for the interdependency of local, regional and global knowledge driven economies. This paper introduces a proposed research project with an aim to analyse the relation between the spatial constitution of urban regions and their relative success in the international competition for talent, capital and investments. Spatial analysis will be conducted both on the macro level: the relation and accessibility between urban regional nodes and on the micro level: the spatial structure of the urban nodes themselves. The project is a trans-disciplinary collaboration between economic geography and urban morphology and has the following objectives: one, t...

This paper presents some new evidence on the conflict of interest that may arise when banks underwrite corporate securities and sell them to their customers. Two alternative views are confronted; a) that commercial banks possess private... more

This paper presents some new evidence on the conflict of interest that may arise when banks underwrite corporate securities and sell them to their customers. Two alternative views are confronted; a) that commercial banks possess private information on the financial condition of their clients and so perform better screening (the certification hypothesis); and b) that commercial banks might convert loans

A commodity exchange is a goods and financial market where different groups of participants trade commodities and commodity-linked contracts, with the underlying objective of transferring exposure to commodity price risks (UNCTAD). A... more

A commodity exchange is a goods and financial market where different groups of participants trade commodities and commodity-linked contracts, with the underlying objective of transferring exposure to commodity price risks (UNCTAD). A commodity exchange that only trades goods is known as a physical or 'cash or forward' market, while the exchange that trades price derivatives is known as financial or 'futures and options' market (see Glossary for detailed definitions). Some agriculture commodity exchanges have both. Agricultural commodity exchanges date as far back as the early 18th century. Modern exchanges, notably the Chicago Board of Trade (CBOT) was created in 1848, recently merged with the Chicago Mercantile Exchange (CME), is one the oldest and most successful futures exchanges worldwide. Today several agricultural commodity exchanges exist throughout the Latin America and Caribbean (LAC) region. They facilitate trade and financial products in countries whose ec...