MARKET FORCES AND DYNAMIC ASSET PRICING

• Published in: Stochastic analysis and applications Vol. 20; no. 5; pp. 1027 - 1082
• Main Authors: Peskir, G., Shorish, J.
• Format: Journal Article
• Language: English
• Published: Philadelphia, PA Taylor & Francis Group 11.01.2002; Taylor & Francis
• Subjects: (Geometric) Brownian motion; Accelerated frame of reference; Applied sciences; Asset pricing; Computer science; control theory; systems; Control theory. Systems; Exact sciences and technology; Inertial frame of reference; JEL Subject Classification: C60; G12; G13; Lévy process; Market force; Market microstructure; Markov property; Mathematics; Mathematics Subject Classification 2000: Primary 91B24; 91B28; 91B50; 93E20; Secondary 91A15; 60G51; 60J60; 60J65; Newtonian mechanics; Operational research and scientific management; Operational research. Management science; Optimal control; Optimal stochastic control; Ornstein-Uhlenbeck process; Portfolio theory; Probability and statistics; Probability theory and stochastic processes; Sciences and techniques of general use; Smoluchowski's approximation; Stochastic processes; The Hamilton-Jacobi-Bellman equation; Markov process; Market structure; Bellman equation; Probabilistic approach; Lévy process; Stochastic game; Brownian motion; Stochastic control(mathematics); Stochastic analysis; Hamilton Jacobi equation; Classical mechanics; Smoluchowski approximation; Newton theory; Ornstein Uhlenbeck process; Market equilibrium; Dynamic model; Market force; Optimal control (mathematics); Asset pricing

We study a dynamic model of asset pricing which is driven by two characteristic market features: the law of investor demand (e.g., "buy low, sell high") and the law of the market institution (which codifies the trading rules under which the market operates). We demonstrate in a simple inve...