nep-mst New Economics Papers
on Market Microstructure
Issue of 2014‒09‒05
three papers chosen by
Thanos Verousis

  1. Asymptotic replication with modified volatility under small transaction costs By Jiatu Cai; Masaaki Fukasawa
  2. A Theory of Blind Trading By Erwan Quintin; Cyril Monnet
  3. Simulation of global carbon trading with agent-based modeling By Zhu Qianting; Wujing; Wangzheng

  1. By: Jiatu Cai; Masaaki Fukasawa
    Abstract: Dynamic hedging of an European option under a general local volatility model with small linear transaction costs is studied. A continuous control version of Leland's strategy that asymptotically replicates the payoff is constructed. An associated central limit theorem of hedging error is proved. The asymptotic error variance is minimized by an explicit trading strategy.
    Date: 2014–08
  2. By: Erwan Quintin (University of Wisconsin at Madison); Cyril Monnet (Universitat Bern)
    Abstract: Differently sophisticated and informed investors coexist in most asset markets. At the same time, differently opaque trading avenues also coexist in most markets. We describe a simple environment where the second-best allocation calls precisely for this juxtaposition. Informed investors are useful because their presence provides the right incentives to generate the optimal volume and distribution of investment opportunities. The optimal opacity design serves to eliminate superfluous rents that would otherwise accrue to informed investors. The model makes precise predictions for the composition of different subsegment of a given asset markets and we argue that these predictions are consistent with the pertinent evidence.
    Date: 2014
  3. By: Zhu Qianting; Wujing; Wangzheng
    Abstract: Using agent-based modeling, this study creates a global carbon trading simulation system, and simulates the global carbon trading market under different scenarioes. To evaluate the effect of quota-based carbon emission permits trading mechanism globally, this article constructs a carbon trading model by using ABS modeling technology, and then develops a global carbon trading system, finally examining the capital flows of carbon trading and its impact on global climate protection. Simulation results shows that :( 1) the results of carbon trading depend on quota allocation. To offset the numerous historic carbon emissions, developed countries such as US would face huge quota deficits in the former scenario. (2) With a decrease in global carbon emission quotas and an increase demand for carbon emissions, the global carbon price will rise in the future.(3) The implementation of carbon trading is helpful for transferring capital mainly from developed countries to developing countries. (4)Under the carbon emission trading process, developed countries will purchase a large number of emissions quotas from developing countries, therefore, the cumulative carbon emissions per capita in developed countries will be still much higher than that in developing countries. (5) In both scenarios, carbon emission trading always increases the global Ramsey utility.
    Keywords: China (CN), the US (US), the EU (EU), Japan (JP), the former Soviet Union (FSU), and rest of the world (ROW)., Agent-based modeling, Impact and scenario analysis
    Date: 2014–07–03

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