Hawkes model for price and trades high-frequency dynamics

We introduce a multivariate Hawkes process that accounts for the dynamics of market prices through the impact of market order arrivals at microstructural level. Our model is a point process mainly characterized by four kernels associated with, respectively, the trade arrival self-excitation, the price changes mean reversion, the impact of trade arrivals on price variations and the feedback of price changes on trading activity. It allows one to account for both stylized facts of market price microstructure (including random time arrival of price moves, discrete price grid, high-frequency mean reversion, correlation functions behaviour at various time scales) and the stylized facts of market impact (mainly the concave-square-root-like/relaxation characteristic shape of the market impact of a meta-order). Moreover, it allows one to estimate the entire market impact profile from anonymous market data. We show that these kernels can be empirically estimated from the empirical conditional mean intensities. We provide numerical examples, application to real data and comparisons to former approaches.     

The price of risk and ambiguity in an intertemporal general equilibrium model of asset prices

We consider a version of the intertemporal general equilibrium model of Cox et?al. (Econometrica 53:363–384, 1985) with a single production process and two correlated state variables. It is assumed that only one of them, Y ₂, has shocks correlated with those of the economy’s output rate and, simultaneously, that the representative agent is ambiguous about its stochastic process. This implies that changes in Y ₂ should be hedged and its uncertainty priced, with this price containing risk and ambiguity components. Ambiguity impacts asset pricing through two channels: the price of uncertainty associated with the ambiguous state variable, Y ₂, and the interest rate. With ambiguity, the equilibrium price of uncertainty associated with Y ₂ and the equilibrium interest rate can increase or decrease, depending on: (i) the correlations between the shocks in Y ₂ and those in the output rate and in the other state variable; (ii) the diffusion functions of the stochastic processes for Y ₂ and for the output rate; and (iii) the gradient of the value function with respect to Y ₂. As applications of our generic setting, we deduct the model of Longstaff and Schwartz (J Financ 47:1259–1282, 1992) for interest-rate-sensitive contingent claim pricing and the variance-risk price specification in the option pricing model of Heston (Rev Financ Stud 6:327–343, 1993). Additionally, it is obtained a variance-uncertainty price specification that can be used to obtain a closed-form solution for option pricing with ambiguity about stochastic variance.     

A continuous time equilibrium model of forward prices and futures prices in a multigood economy

This paper is a theoretical investigation of equilibrium forward and futures prices. We construct a rational expectations model in continuous time of a multigood, identical consumer economy with constant stochastic returns to scale production. Using this model we find three main results. First, we find formulas for equilibrium forward, futures, discount bond, commodity bond and commodity option prices. Second, we show that a futures price is actually a forward price for the delivery of a random number of units of a good; the random number is the return earned from continuous reinvestment in instantaneously riskless bonds until maturity of the futures contract. Third, we find and interpret conditions under which normal backwardation or contango is found in forward or futures prices; these conditions reflect the usefulness of forward and futures contracts as consumption hedges.     

The impacts of large trades by trader types on intraday futures prices: Evidence from the Taiwan Futures Exchange

We find that China's P/E ratio is comparable to that of the U.S. S&P 1500 index, a broad based index covering large, middle, and small capitalization firms. We provide an explanation as to why China's seemingly low P/E ratio is not surprising in light of the economic growth that it has experienced. Specifically, we show that (i) the P/E ratio is negatively associated with earnings volatility in both the Chinese and U.S. stock markets with an economically significant magnitude; and (ii) historical earnings volatility is considerably higher in China than in the U.S. Higher earnings volatility in China offsets higher growth prospect in setting the P/E ratio, making its P/E ratio much closer to what is observed empirically than otherwise implied by its growth rate.     

The summary informativeness of stock trades: an econometric analysis

In a security market with asymmetrically informed participants,trades are signals of private information. In this article,new measures of trade informativeness are proposed based ona decomposition of the variance of changes in the efficientprice into trade-correlated and -uncorrelated components. Thetrade-correlated component has a natural interpretation as anabsolute measure of trade informativeness. The ratio of thiscomponent to the total variance is a relative measure (i.e.,a proportion normalized with respect to the total public information).For a sample of NYSE-listed companies, trades are found to bemore informative for small firms in both absolute and relativesenses. From an analysis of intraday patterns, it appears thattrades are in absolute terms more informative at the beginningof trading, but slightly less informative in relative terms.     

Quantifying private benefits of control from a structural model of block trades

We study the determinants of private benefits of control in negotiated block transactions. We estimate the block pricing model in Burkart, Gromb and Panunzi (2000) explicitly accounting for both block premiums and block discounts in the data. The evidence suggests that the occurrence of a block premium or discount depends on the controlling block holder's ability to fight a potential tender offer for the target's stock. We find evidence of large private benefits of control and of associated deadweight losses, but also of value creation by controlling shareholders. Finally, we provide evidence consistent with Jensen's free cash flow hypothesis.     

A hyperbolic diffusion model for stock prices

In the present paper we consider a model for stock prices which is a generalization of the model behind the Black–Scholes formula for pricing European call options. We model the log-price as a deterministic linear trend plus a diffusion process with drift zero and with a diffusion coefficient (volatility) which depends in a particular way on the instantaneous stock price. It is shown that the model possesses a number of properties encountered in empirical studies of stock prices. In particular the distribution of the adjusted log-price is hyperbolic rather than normal. The model is rather successfully fitted to two different stock price data sets. Finally, the question of option pricing based on our model is discussed and comparison to the Black–Scholes formula is made. The paper also introduces a simple general way of constructing a zero-drift diffusion with a given marginal distribution, by which other models that are potentially useful in mathematical finance can be developed.     

A four-factor stochastic volatility model of commodity prices

The number of factors driving the uncertain dynamics of commodity prices has been a central consideration in financial literature. While the majority of empirical studies relies on the assumption that up to three factors are sufficient to explain all relevant uncertainty inherent in commodity spot, futures, and option prices, evidence from Trolle and Schwartz (Rev Financ Stud 22(11):4423–4461, 2009b) and Hughen (J Futures Mark 30(2):101–133, 2010) indicates a need for additional risk factors. In this article, we propose a four-factor maximal affine stochastic volatility model that allows for three independent sources of risk in the futures term structure and an additional, potentially unspanned stochastic volatility process. The model principally integrates the insights from Hughen (2010) and Tang (Quant Finance 12(5):781–790, 2012) and nests many well-known models in the literature. It can account for several stylized facts associated with commodity dynamics such as mean reversion to a stochastic level, stochastic volatility in the convenience yield, a time-varying correlation structure, and time-varying risk-premia. In-sample and out-of-sample tests indicate a superior model fit to futures and options data as well as lower hedging errors compared to three-factor benchmark models. The results also indicate that three factors are not sufficient to model the joint dynamics of futures and option prices accurately.     

Asset prices and liquidity in an exchange economy

An asset-pricing model is developed, in which financial assets are valued for their liquidity—the extent to which they are useful in facilitating exchange—as well as for being claims to streams of consumption goods. The theory is used to study the implications of this liquidity channel for average asset returns, the equity-premium puzzle and the risk-free rate puzzle.     

The profitability of carry trades

The uncovered interest parity (UIP) condition suggests that carry trades whereby investors borrow in the low interest rate currency and invest in the high interest rate currency should not result in excess profits over the long run. In this paper, we test the significance of the conventional empirical failure of UIP condition. Using the four bilateral pound parities we fail to detect significant excess carry trade profits for the yen, euro and swiss franc–pound parities. The only parity for which the carry trade consistently makes excess profits is the dollar–pound parity. This result is somewhat surprising as this is the currency pair with the lowest interest rate differential. We are extremely grateful for the anonymous referee’s comments on this paper.     

A Markov model for valuing asset prices in a dynamic bargaining market

This paper proposes a Markov chain model for studying the impact on asset prices of illiquidity associated with search and bargaining in an economy. The economy consists of finitely many agents who can trade only when they find each other, and any trade between agents changes the population of the agent types which affects the asset price in the future. Assuming that the equilibrium utility as well as the trade price is proportional to the asset dividend, we obtain the asset prices in steady state. Through extensive numerical experiments, we observe that the equilibrium prices exhibit the cutoff phenomenon (i.e. crash) as the fraction of pessimistic agents becomes large. Models with a market maker as well as irrational agents are also considered.     

Non-constant rates and over-diffusive prices in a simple model of limit order markets

Abstract

Using simple particle models of limit order markets, we argue that the mid-term over-diffusive price behaviour is due to the variability of market order and limit order rates. Several rules for rate changes are considered. We obtain analytical results for bid-ask spread properties, Hurst plots and price increment correlation functions.     

Transaction costs and asset prices: a dynamic equilibrium model

In this article we study the effects of transaction costs onasset prices. We assume an overlapping generations economy witha riskless, liquid bond, and many risky stocks carrying proportionaltransaction costs. We obtain stock prices and turnover in closedform. Surprisingly, a stock's price may increase in transactioncosts, and a more frequently traded stock may be less adverselyaffected by an increase in transaction costs. Calculations basedon the 'marginal' investor overestimate the effects of transactioncosts. For realistic parameter values, transaction costs havevery small effects on stock prices but large effects on turnover.     

也门地区政治风险系列案件解读

四个案例 案例一:河北一家大型化工医药生产和贸易企业A公司于2015年3月12日向也门荷台达港出运一批药品,货值为八万余美元,贸易约定支付方式为L C30天.A公司于2015年3月17日在信用证约定的时间内将全套单据交付给中国国内银行,后中国国内银行将单据向也门开证行寄送.     

Trade disclosure regulation in markets with negotiated trades

In dealership markets disclosure of size and price of detailsof public trades is typically incomplete. We examine whetherfull and prompt disclosure of public-trade details improvesthe welfare of a risk-averse investor. We analyze a model ofdealership market where a market maker first executes a publictrade and then offsets her position by trading with other marketmakers. We distinguish between quantity risk and price revisionrisk. We show that if the market maker learns some informationabout the motive behind public trade, neither regime is unambiguouslywelfare superior. This is because greater transparency improvesquantity risk sharing but worsens price revision risk sharing.     

不可忽视保留贸易往来书面证据

中国信保专业人士指出：在国际贸易中,买卖双方在签订合同之后,妥善保存相关书面文件,对于后期发生贸易纠纷时确认债权债务关系和法律责任归属往往具有十分重要的意义     

Impact of outsiders and disclosed insider trades

We analyze a dynamic market where outsiders share part of the information about a security with a corporate insider and update their incomplete information by learning from disclosed insider trades. Particular focus is on the insider's response to increasing number of learning outsiders.     

Advisors and asset prices: A model of the origins of bubbles

We develop a model of asset price bubbles based on the communication process between advisors and investors. Advisors are well-intentioned and want to maximize the welfare of their advisees (like a parent treats a child). But only some advisors understand the new technology (the tech-savvies); others do not and can only make a downward-biased recommendation (the old-fogies). While smart investors recognize the heterogeneity in advisors, naive ones mistakenly take whatever is said at face value. Tech-savvies inflate their forecasts to signal that they are not old-fogies, since more accurate information about their type improves the welfare of investors in the future. A bubble arises for a wide range of parameters, and its size is maximized when there is a mix of smart and naive investors in the economy. Our model suggests an alternative source for stock over-valuation in addition to investor overreaction to news and sell-side bias.     

The mandatory disclosure of trades and market liquidity

Financial market regulations require various 'insiders' to disclosetheir trades after the trades are made. We show that such mandatorydisclosure rules can increase insiders' expected trading profits.This is because disclosure leads to profitable trading opportunitiesfor insiders even if they possess no private information onthe asset's value. We also show that insiders will generallynot voluntarily disclose their trades, so for disclosure tobe forthcoming, it must be mandatory. Key to the analysis isthat the market cannot observe whether an insider is tradingon private information regarding asset value of is trading forpersonal portfolio reasons.     

An intemporal model of asset prices in a Markov economy with a limiting stationary distribution

A testable single-beta model of asset prices is presented. Ifstate variables have a long-run stationary joint dysfunction,then the rate return on a very long-term default-free discountbond will be perfectly correlated with the representative investor'smarginal utility of consumption. Thus, the covariance of anasset's return with the return on such a bond will be an appropriatemeasure of the asset's riskiness. The model can be, therefore,applied or tested even though the market portfolio or aggregateconsumption may not be observable. It also is shown that theexpected rate of return on a very long-term bond is equal toits variance. This proposition can be tested to determine whetherstate variables follow stationary processes.