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The CMMV Pricing Model in Practice

Author

Listed:
  • Bernard De Meyer

    (Centre d'Economie de la Sorbonne
    https://centredeconomiesorbonne.univ-paris1.fr)

  • Moussa Dabo

    (Centre d'Economie de la Sorbonne
    https://centredeconomiesorbonne.univ-paris1.fr)

Abstract

Mainstream financial econometrics methods are based on models well tuned to replicate price dynamics, but with little to no economic justification. In particular, the randomness in these models is assumed to result from a combination of exogenous factors. In this paper, we present a model originating from game theory, whose corresponding price dynamics are a direct consequence of the information asymmetry between private and institutional investors. This model, namely the CMMV pricing model, is therefore rooted in market microstructure. The pricing methods derived from it also appear to fit very well historical price data. Indeed, as evidenced in the last section of the paper, the CMMV model does a very good job predicting option prices from readily available data. It also enables to recover the dynamic of the volatility surface

Suggested Citation

  • Bernard De Meyer & Moussa Dabo, 2019. "The CMMV Pricing Model in Practice," Documents de travail du Centre d'Economie de la Sorbonne 19026, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    • Handle: RePEc:mse:cesdoc:19026
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    More about this item

    Keywords

    Game Theory; Information asymmetry; CMMV; Option pricing;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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