Asset price volatility and price extrema

DOI10.3934/DCDSB.2020010zbMATH Open1437.91440arXiv1802.04774OpenAlexW2994444387WikidataQ126580516 ScholiaQ126580516MaRDI QIDQ2175688FDOQ2175688

Carey Caginalp, Gunduz Caginalp

Publication date: 29 April 2020

Published in: Discrete and Continuous Dynamical Systems. Series B (Search for Journal in Brave)

Abstract: The relationship between price volatilty and a market extremum is examined using a fundamental economics model of supply and demand. By examining randomness through a microeconomic setting, we obtain the implications of randomness in the supply and demand, rather than assuming that price has randomness on an empirical basis. Within a very general setting the volatility has an extremum that precedes the extremum of the price. A key issue is that randomness arises from the supply and demand, and the variance in the stochastic differential equation govening the logarithm of price must reflect this. Analogous results are obtained by further assuming that the supply and demand are dependent on the deviation from fundamental value of the asset.

Full work available at URL: https://arxiv.org/abs/1802.04774

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zbMATH Keywords

asset price dynamicsmarket topsprice extremavolatility and price trend

Mathematics Subject Classification ID

Consumer behavior, demand theory (91B42) Stochastic ordinary differential equations (aspects of stochastic analysis) (60H10) Interest rates, asset pricing, etc. (stochastic models) (91G30)

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Cited In (2)

• Stochastic asset price dynamics and volatility using a symmetric supply and demand price equation
• Asset price volatility and banks

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