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Instantaneous self-fulfilling of long-term prophecies on the probabilistic distribution of financial asset values

Authors
Journal
Annales de l Institut Henri Poincare (C) Non Linear Analysis
0294-1449
Publisher
Elsevier
Publication Date
Volume
24
Issue
3
Identifiers
DOI: 10.1016/j.anihpc.2005.12.005

Abstract

Abstract Our goal here is to present various examples of situations where a “large” investor (i.e. an investor whose “size” challenges the liquidity or the depth of the market) sees his long-term guesses on some important financial parameters instantaneously confirmed by the market dynamics as a consequence of his trading strategy, itself based upon his guesses. These examples are worked out in the context of a model (i.e. a quantitative framework) which attempts to provide a rigorous basis for the qualitative intuitions of many practitioners. Our results may be viewed as some kind of reverse Black–Scholes paradigm where modifications of option prices affect today's real volatility.

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