Instabilities in quasi-efficient markets

Abstract

This thesis studies ways of modelling instabilities in quasi-efficient markets. We consider quasi-efficient markets where arbitrage is possible, but is relatively small and short lived. Under such a assumption we derive optimal arbitrage strategy of one agent and consider possible ways of funding optimal strategy under stop-loss constraint. Optimal strategy is used to build a multi-agent model which defines the arbitrage dynamics, i.e. its mean- reverting behaviour. The influence of agents on the asset prices is modelled by means of permanent price impact function. Multi-agent model is self-consistent as it creates mean-reverting term of the same type under which the optimal strategy for one agent was derived. As we show adding stop-loss constraint creates possibility for market instabilities

Publication DOI: https://doi.org/10.48780/publications.aston.ac.uk.00037532
Divisions: College of Engineering & Physical Sciences > School of Informatics and Digital Engineering > Mathematics
Aston University (General)
Additional Information: If you have discovered material in Aston Research Explorer which is unlawful e.g. breaches copyright, (either yours or that of a third party) or any other law, including but not limited to those relating to patent, trademark, confidentiality, data protection, obscenity, defamation, libel, then please read our Takedown Policy and contact the service immediately.
Institution: Aston University
Uncontrolled Keywords: limits of arbitrage,stop-loss,market instabilities,margin call,superportfolio,market impact
Completed Date: 2017
Authors: Sitnikovs, Dmitrijs

Export / Share Citation


Statistics

Additional statistics for this record