Financial modelling with random bridge signals and forward information

Download

index.pdf

Date

2016

Author

Aydın, Nadi Serhan

Metadata

Show full item record

Item Usage Stats

245
views

123
downloads

In this thesis, we focus on modelling financial information flow, and information-based asset pricing. The fundamental properties of the framework under study are recovered in detail, after which a brief information-theoretic perspective is offered to quantify the information content of signals. A link to the existing literature on asymmetric information/belief equilibrium is established through a sequential auction model with heterogeneous signals. The effects of differential information on the allocation of overall profit & loss (P&L) and the pace of price discovery are analysed − including the case where agents work out an effective filtration by mutually learning from trade. We characterise the signal-based expected P&L of agents based on explicit formulae for signal quality in terms of the correctness of trade direction, and explore for the existence of an optimal strategy by introducing a dynamic-programming-based decision rule, when there is a common anticipation of gains from trade. A short extension of the optimisation problem to the cases of ‘risk-adjusted gains’ and ‘risk-averse agents’ is provided. Finally, we examine, through a particular choice of real-world signal and by introducing a slightly modified version of the information process, the practical viability of the signal-based framework on a selected stock ticker. An analytical approximation to information-based price is derived through the Kummer’s function.

Subject Keywords

Pricing., Assets (Accounting)., Mathematical optimization.

URI

http://etd.lib.metu.edu.tr/upload/12620135/index.pdf
https://hdl.handle.net/11511/25786

Collections

Graduate School of Applied Mathematics, Thesis

Suggestions

OpenMETU
Core

Skewness and kurtosis factors and asset pricing in Borsa İstanbul Gürbüz, Aybike; Danışoğlu, Seza; Department of Financial Mathematics (2014) Asset pricing always attracted a lot of attention in the finance world literature and it is built mainly on the mean-variance framework of the Capital Asset Pricing Model (CAPM). Although CAPM is commonly used by academics and practitioners, its validity is often questioned. The researchers have investigated the significance of CAPM by empirical tests, and there is a fairly large body of the literature about the shortcomings of the model. For these reasons, researchers on asset pricing have started to devel...
Interim efficient auctions with interdependent valuations Küçükşenel, Serkan (Springer Science and Business Media LLC, 2012-05-01) We provide a characterization of interim efficient auctions and examine their properties in the presence of informational interdependent valuations. We show that buyers can be awarded the auctioned item less often than the efficient level. We also show that buyers obtain the item more often as the degree of heterogeneity in preferences increases, even though profitability of trade does not depend on the heterogeneity in preferences.
Stochastic optimization applied to self-financing portfolio: does bequest matter? Gazioglu, Saziye; Bastiyali-Hayfavi, Azize (Informa UK Limited, 2010-01-01) The article studies stochastic optimization of an intertemporal consumption model to allocate financial assets between risky and risk-free assets. We use a stochastic optimization technique, in which utility is maximized subject to a self-financing portfolio constraint. The papers in literature have estimated the errors of Euler equations using data from financial markets. It has been shown that it is sufficient to test the first order Euler equation implied by the model. However, they all assume a constant...
Bank asset and liability management under uncertainty Oguzsoy, CB; Güven, Sibel (Elsevier BV, 1997-11-01) This study presents a multiperiod stochastic linear simple recourse model for asset and liability management in banking. The model determines the portfolio of assets and liabilities over the planning horizon given a set of deterministic rates of returns of investments and costs of borrowings, and a set of random outstanding deposit levels, liquidity and total reserve requirements with a given discrete probability distribution. The intention is to develop an optimization tool to assure sustained profitabilit...
Commercial Real Estate, Information Production and Market Activity Downs, David H.; Güner, Zehra Nuray (Springer Science and Business Media LLC, 2013-02-01) This paper addresses several issues related to the production of information across commercial real estate markets. The purpose is to determine the extent to which factors of production might complement or substitute for one another. A simple model is presented to illustrate the potential trade-offs between appraisal- and transactions-based information production. A series of empirical tests are performed on a panel data set constructed for 51 markets covering 9 years, 2001 through 2009. The number of comme...

Citation Formats

N. S. Aydın, “Financial modelling with random bridge signals and forward information,” Ph.D. - Doctoral Program, Middle East Technical University, 2016.