Does fundamental value run asset price formation process? Evidence from option price information content

2016 ◽  
Vol 18 (4) ◽  
pp. 255-268
Author(s):  
Abderrahmen Aloulou ◽  
Siwar Ellouze
Keyword(s):  
Information Content ◽  
Formation Process ◽  
Asset Price ◽  
Option Price ◽  
Price Formation ◽  
Price Information ◽  
Fundamental Value

scholarly journals Emergent volatility in asset markets with heterogeneous agents

2001 ◽  
Vol 6 (3) ◽  
pp. 171-180 ◽  
Author(s):  
Honggang Li ◽  
J. Barkley Rosser
Keyword(s):  
Heterogeneous Agents ◽  
Moving Average ◽  
Asset Price ◽  
Market Price ◽  
Switching Behavior ◽  
Asset Markets ◽  
Technical Trading Rules ◽  
Market Participants ◽  
Fundamental Value ◽  
Discrete Formulation

This paper examines the emergence of complex volatility in dynamic asset markets when there are heterogeneous agents. A discrete formulation is studied with two categories of market participants, fundamentalist traders who buy when the asset price is below the fundamental value and sell when it is above and noise traders who use moving average technical trading rules that can lead them to chase trends. Agents switch from one type of strategy to the other according to relative returns. A variety of outcomes are studied using numerical simulation, including variation of market price responsiveness to changes in excess demand, in switching behavior, and the introduction of noise. Bifurcation analysis of certain parameters is presented.

An Analysis of the Price Formation Process at a HUD Auction

2000 ◽  
Vol 20 (3) ◽  
pp. 279-298 ◽  
Author(s):  
Marcus Allen ◽  
Judith Swisher
Keyword(s):  
Formation Process ◽  
Price Formation

scholarly journals Series representation of the pricing formula for the European option driven by space-time fractional diffusion

2018 ◽  
Vol 21 (4) ◽  
pp. 981-1004 ◽  
Author(s):  
Jean-Philippe Aguilar ◽  
Cyril Coste ◽  
Jan Korbel
Keyword(s):  
Asset Price ◽  
Series Representation ◽  
Option Price ◽  
Double Series ◽  
Fractional Diffusion ◽  
Space Time ◽  
Esscher Transform ◽  
European Option ◽  
Underlying Asset ◽  
European Call Option

Abstract In this paper, we show that the price of an European call option, whose underlying asset price is driven by the space-time fractional diffusion, can be expressed in terms of rapidly convergent double-series. This series formula is obtained from the Mellin-Barnes representation of the option price with help of residue summation in ℂ2. We also derive the series representation for the associated risk-neutral factors, obtained by Esscher transform of the space-time fractional Green functions.

scholarly journals An Experimental Test of the Lucas Asset Pricing Model

2018 ◽  
Vol 86 (2) ◽  
pp. 627-667 ◽  
Author(s):  
Sean Crockett ◽  
John Duffy ◽  
Yehuda Izhakian
Keyword(s):  
Asset Pricing ◽  
Asset Price ◽  
Consumption Smoothing ◽  
Asset Price Bubbles ◽  
Price Bubbles ◽  
Fundamental Value ◽  
Experimental Treatments ◽  
Marginal Returns ◽  
Dynamic Asset Pricing ◽  
Fundamental Price

Abstract We implement a dynamic asset pricing experiment in the spirit of Lucas (1978) with storable assets and non-storable cash. In the first treatment, we impose diminishing marginal returns to cash to incentivize consumption smoothing across periods. We find that subjects use the asset to smooth consumption, although the asset trades at a discount relative to the risk-neutral fundamental price. This under-pricing is a departure from the asset price “bubbles” observed in the large experimental asset pricing literature originating with Smith et al. (1988) and can be rationalized by considering subjects’ risk aversion with respect to uncertain money earnings. In a second treatment, with no induced motivation for trade à la the Smith et al. design, we find that the asset trades at a premium relative to its expected value and that shareholdings are highly concentrated. Elimination of asset price uncertainty in additional experimental treatments serves to reinforce the same observations, and suggests that speculative behaviour explains the departure of prices from fundamental value in the absence of a consumption-smoothing motive for asset trades.

Monetary Policy and Asset Price Gap Signal Technology in a New Keynesian Framework

2021 ◽  
Vol 0 (0) ◽  
Author(s):  
Alexander Mislin
Keyword(s):  
Inflation Rate ◽  
Asset Price ◽  
New Keynesian ◽  
Adjustment Process ◽  
Keynesian Model ◽  
Nominal Rate ◽  
Dynamic Stochastic ◽  
The Difference ◽  
Fundamental Value ◽  
Output Gaps

Abstract This article develops a New Keynesian model in which the inflation rate depends on the present value of future output gaps and asset prices gaps. The latter follows a price adjustment process. These asset price gaps are driven by ‛asset price gap signal technology’, a measure of exponentially distributed asset price gaps with a signalling mechanism. Within a dynamic stochastic optimisation approach, I identify a policy rule for the central bank in which the asset price gap the difference between the actual asset price at time t to its fundamental value plays a crucial role in determining the nominal rate of interest.

A guide on empirical tests of the EMH

2019 ◽  
Vol 18 (2) ◽  
pp. 268-295
Author(s):  
David Peón ◽  
Manel Antelo ◽  
Anxo Calvo
Keyword(s):  
Financial Markets ◽  
Design Methodology ◽  
Recent Literature ◽  
Asset Price ◽  
Efficient Market Hypothesis ◽  
Price Formation ◽  
Content Type ◽  
Economic Fundamentals ◽  
Empirical Tests ◽  
Available Information

Purpose The efficient market hypothesis (EMH) states that asset prices in financial markets always reflect all available information about economic fundamentals. The purpose of this paper is to provide a guide as to which predictions of the EMH seem to be borne out by empirical evidence. Design/methodology/approach Rather than following the classic three groups of tests for the different forms of EMH that are common in the literature, the authors consider how the two alternative definitions of the EMH and the joint hypothesis problem impact on the tests and leave the controversy unsolved. The authors briefly report the antecedents, the main theoretical and empirical contributions and recent literature on each type of tests. Findings Eventually, as a summary for each type of tests, the authors provide a critical view on the main sources of acrimony between the alternative schools of thought in understanding asset price formation. Originality/value The paper may be seen as an up-to-date introductory review for researchers on the different tests of the EMH performed, and for newcomers to understand the key sources of acrimony between rationalists and behaviorists.

scholarly journals PENENTUAN HARGA OPSI BELI TIPE ASIA DENGAN METODE MONTE CARLO-CONTROL VARIATE

2017 ◽  
Vol 6 (1) ◽  
pp. 29
Author(s):  
NI NYOMAN AYU ARTANADI ◽  
KOMANG DHARMAWAN ◽  
KETUT JAYANEGARA
Keyword(s):  
Monte Carlo ◽  
Standard Error ◽  
Asset Price ◽  
Option Price ◽  
Asian Option ◽  
Underlying Asset ◽  
Average Value ◽  
Control Variate ◽  
Exercise Price ◽  
Maturity Date

Option is a contract between the writer and the holder which entitles the holder to buy or sell an underlying asset at the maturity date for a specified price known as an exercise price. Asian option is a type of financial derivatives which the payoff taking the average value over the time series of the asset price. The aim of the study is to present the Monte Carlo-Control Variate as an extension of Standard Monte Carlo applied on the calculation of the Asian option price. Standard Monte Carlo simulations 10.000.000 generate standard error 0.06 and the option price convergent at Rp.160.00 while Monte Carlo-Control Variate simulations 100.000 generate standard error 0.01 and the option price convergent at Rp.152.00. This shows the Monte Carlo-Control Variate achieve faster option price toward convergent of the Monte Carlo Standar.

An Empirical Study on Implied Volatility Skew Using PCA

2016 ◽  
Vol 24 (3) ◽  
pp. 365-397
Author(s):  
Jin Woo Kim ◽  
Joon H. Rhee
Keyword(s):  
Financial Crisis ◽  
Implied Volatility ◽  
Structural Changes ◽  
Explanatory Power ◽  
Asset Price ◽  
Option Price ◽  
Principal Component ◽  
Underlying Asset ◽  
Put Options ◽  
Two Factors

This paper extracts the factors determining the implied volatility skew movements of KOSPI200 index options by applying PCA (Principal Component Analysis). In particular, we analyze the movement of skew depending on the changes of the underlying asset price. As a result, it turned out that two factors can explain 94.6%~99.8% of the whole movement of implied volatility. The factor1 could be interpreted as ‘parallel shift’, and factor2 as the movement of ‘tilt or slope’. We also find some significant structural changes in the movement of skew after the Financial Crisis. The explanatory power of factor1 becomes more important on the movement of skew in both call and put options after the financial crisis. On the other hand, the influences of the factor2 is less. In general, after financial crisis, the volatility skew has the strong tendency to move in parallel. This implies that the changes in the option price or implied volatility due to the some shocks becomes more independent of the strike prices.

Noise trading and the price formation process

2008 ◽  
Vol 15 (2) ◽  
pp. 232-250 ◽  
Author(s):  
Henk Berkman ◽  
Paul D. Koch
Keyword(s):  
Formation Process ◽  
Price Formation ◽  
Noise Trading
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