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Trader Behavior and its Effect on Asset Price Dynamics

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  • James Primbs
  • Muruhan Rathinam
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    Abstract

    In this paper, we present a natural mathematical framework to model trader behavior as a continuous time discrete event process, and derive stochastic differential equations for aggregate behavior and price dynamics by passing to diffusion limits. In particular, we model extraneous, value, momentum and hedge traders. Through analysis and numerical simulation we explore some of the effects these trading strategies have on price dynamics.

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    File URL: http://www.tandfonline.com/doi/abs/10.1080/13504860802583444
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    Bibliographic Info

    Article provided by Taylor and Francis Journals in its journal Applied Mathematical Finance.

    Volume (Year): 16 (2009)
    Issue (Month): 2 ()
    Pages: 151-181

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    Handle: RePEc:taf:apmtfi:v:16:y:2009:i:2:p:151-181

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    Related research

    Keywords: Trader behavior; price dynamics; stock pinning; diffusion limit; Poisson random measure;

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