Liquidity Based Modeling of Asset Price Bubbles via Random Matching

DOI10.1137/22M1531580MaRDI QIDQ6184829zbMATH OpenOpenAlexFDO

Authors Francesca Biagini, Andrea Mazzon, Thilo Meyer-Brandis, Katharina Oberpriller

Publication date 29 January 2024

Published in SIAM Journal on Financial Mathematics (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/2210.13804

zbMATH Keywords

asset price bubblescontagiondynamic directed random matching with stochasic intensitiesliquidity

Mathematics Subject Classification ID

Applications of stochastic analysis (to PDEs, etc.) (60H30) Interest rates, asset pricing, etc. (stochastic models) (91G30)

Abstract: In this paper we study the evolution of asset price bubbles driven by contagion effects spreading among investors via a random matching mechanism in a discrete-time version of the liquidity based model of [25]. To this scope, we extend the Markov conditionally independent dynamic directed random matching of [13] to a stochastic setting to include stochastic exogenous factors in the model. We derive conditions guaranteeing that the financial market model is arbitrage-free and present some numerical simulation illustrating our approach.

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