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Stochastic Processes in Finance and Behavioral Finance

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  • Steinbacher, Matjaz

Abstract

In the paper, we put some foundations for studying asset pricing and finance as a stochastic and behavioral process. In such process, preferences and psychology of agents represent the most important factor in the decision-making of people. Individuals have their own ways of acquiring the information they need, how to deal with them and how to make predictions and decisions. People usually also do not behave consistent in time, but learn. Therefore, in order to understand the behavior on the markets, a new paradigm is needed.

Suggested Citation

  • Steinbacher, Matjaz, 2008. "Stochastic Processes in Finance and Behavioral Finance," MPRA Paper 13603, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:13603
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    Cited by:

    1. Cadogan, Godfrey, 2010. "Commutative Prospect Theory and Stopped Behavioral Processes for Fair Gambles," MPRA Paper 22342, University Library of Munich, Germany.

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    More about this item

    Keywords

    behavioral finance; stochastic finance;

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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