New Economics Papers
on Market Microstructure
Issue of 2013‒06‒24
three papers chosen by
Thanos Verousis

  1. The price impact of CDS trading By Gündüz, Yalin; Nasev, Julia; Trapp, Monika
  2. Estimating the Cost of Liquidity in Livestock Futures Markets using the Information Contained in the Limit Order Book By Omololu, Enoch; Frank, Julieta
  3. Fractional G-White Noise Theory, Wavelet Decomposition for Fractional G-Brownian Motion, and Bid-Ask Pricing Application to Finance Under Uncertainty By Wei Chen

  1. By: Gündüz, Yalin; Nasev, Julia; Trapp, Monika
    Abstract: In this paper we show that informational and real frictions in CDS markets strongly affect CDS premia. We derive this main finding using a proprietary set of individual CDS transactions cleared by the Depository Trust & Clearing Corporation. We first show that CDS traders adjust the CDS premium in response to the observed order flow. Buy orders lead to an increase of the premium and sell orders to a decrease, suggesting that the order flow carries information. Second, we show that traders adjust the premium more for transactions with higher inventory risk. Third, trading with buy-side investors who presumably have less market power increases this effect. Overall, our results imply that CDS premia contain a significant non-default related component which CDS traders charge to protect themselves against informational and real frictions. --
    Keywords: CDS,frictions,asymmetric information,inventory risk,market power
    JEL: G12 G14
    Date: 2013
  2. By: Omololu, Enoch; Frank, Julieta
    Keywords: Demand and Price Analysis, Livestock Production/Industries, Risk and Uncertainty,
    Date: 2013
  3. By: Wei Chen
    Abstract: G-framework is presented by Peng [41] for measure risk under uncertainty. In this paper, we define fractional G-Brownian motion (fGBm). Fractional G-Brownian motion is a centered G-Gaussian process with zero mean and stationary increments in the sense of sub-linearity with Hurst index $H\in (0,1)$. This process has stationary increments, self-similarity, and long rang dependence properties in the sense of sub-linearity. These properties make the fractional G-Brownian motion a suitable driven process in mathematical finance. We construct wavelet decomposition of the fGBm by wavelet with compactly support. We develop fractional G-white noise theory, define G-It\^o-Wick stochastic integral, establish the fractional G-It\^o formula and the fractional G-Clark-Ocone formula, and derive the G-Girsanov's Theorem. For application the G-white noise theory, we consider the financial market modelled by G-Wick-It\^o type of SDE driven by fGBm. The financial asset price modelled by fGBm has volatility uncertainty, using G-Girsanov's Theorem and G-Clark-Ocone Theorem, we derive that sublinear expectation of the discounted European contingent claim is the bid-ask price of the claim.
    Date: 2013–06

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