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Trader Behavior and its Effect on Asset Price Dynamics

  • James Primbs
  • Muruhan Rathinam
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    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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    Article provided by Taylor & 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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