New Economics Papers
on Financial Markets
Issue of 2014‒05‒24
three papers chosen by

  1. A Pricing Theory under a Finite Number of Securities Issued: A Synthesis of "Market Microstructure" and "Mathematical Finance" By Yoshihiko Uchida; Daisuke Yoshikawa
  2. Quantum spatial-periodic harmonic model for daily price-limited stock markets By Xiangyi Meng; Jian-Wei Zhang; Jingjing Xu; Hong Guo
  3. Micro and Macro Benefits of Random Investments in Financial Markets By Alessio Emanuele Biondo; Alessandro Pluchino; Andrea Rapisarda

  1. By: Yoshihiko Uchida (Director and Senior Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail:; Daisuke Yoshikawa (Economist, Institute for Monetary and Economic Studies, Bank of Japan (currently, Lecturer, Faculty of Business Administration, Hokkai Gakuen University, E-mail:
    Abstract: Traditional finance theory generally assumes a frictionless market, in which a risk premium is described only by price volatility. In reality, however, the risk premium is influenced by a range of factors including the market microstructure. This paper constructs a novel no- arbitrage and complete model that explicitly incorporates among the market microstructure factors a constraint on a finite number of securities issued. From the theoretical perspective, the model is a synthesis of market microstructure and mathematical finance in that it makes it possible to derive a risk-neutral price applicable to a market with a detailed market microstructure. We also calibrate the model to show that the price in the Japanese government bond futures market is significantly affected by the factor of number of securities issued.
    Keywords: Security price, Number of securities issued, Risk neutral pricing rule, Market microstructure, No-arbitrage, Quasi risk aversion, Quasi risk neutral measure
    JEL: D49 G01 G12
    Date: 2014–05
  2. By: Xiangyi Meng; Jian-Wei Zhang; Jingjing Xu; Hong Guo
    Abstract: We investigate the behavior of stocks in daily price-limited stock markets by purposing a quantum spatial-periodic harmonic model. The stock price is presumed to oscillate and damp in a quantum spatial-periodic harmonic oscillator potential well. Complicated non-linear relations including inter-band positive correlation and intra-band negative correlation between the volatility and the trading volume of stocks are derived by considering the energy band structure of the model. The validity of price limitation is then examined and abnormal phenomena of a price-limited stock market (Shanghai Stock Exchange) of China are studied by applying our quantum model.
    Date: 2014–05
  3. By: Alessio Emanuele Biondo; Alessandro Pluchino; Andrea Rapisarda
    Abstract: In this paper, making use of recent statistical physics techniques and models, we address the specific role of randomness in financial markets, both at the micro and the macro level. In particular, we review some recent results obtained about the effectiveness of random strategies of investment, compared with some of the most used trading strategies for forecasting the behavior of real financial indexes. We also push forward our analysis by means of a Self-Organized Criticality model, able to simulate financial avalanches in trading communities with different network topologies, where a Pareto-like power law behavior of wealth spontaneously emerges. In this context, we present new findings and suggestions for policies based on the effects that random strategies can have in terms of reduction of dangerous financial extreme events, i.e. bubbles and crashes.
    Date: 2014–05

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