We estimate a general microstructure model of the transitory and permanent impact of order flow on stock prices. Jumps are detected in both the transaction price (observation equation) and fundamental value (state equation). The model's parameters and variances are updated in real time. Prices...

Using virtual stock markets with artificial interacting software investors, aka agent-based models (ABMs), we present a method to reverse engineer real-world financial time series. We model financial markets as made of a large number of interacting boundedly rational agents. By optimizing the...

Hedge funds offer desirable risk-return profiles; but we also find high management fees, lack of transparency and worse, very limited liquidity (they are often closed to new investors and disinvestment fees can be prohibitive). This creates an incentive to replicate the attractive features of...

We model the dynamics of asset prices and associated derivatives by consideration of the dynamics of the conditional probability density process for the value of an asset at some specified time in the future. In the case where the asset is driven by Brownian motion, an associated "master...

Static and dynamic games are important tools for the analysis of strategic interactions among economic agents and have found many applications in economics. In many games equilibria can be described as solutions of polynomial equations. In this paper we describe state-of-the-art techniques for...

In the existing literature on barrier options, much effort has been exerted to ensure convergence through placing the barrier in close proximity to, or directly onto, the nodes of the tree lattice. In this paper we show that this may not be necessary to achieve accurate option price...

Market mechanisms are increasingly being used as a tool for allocating somewhat scarce but unpriced rights and resources, and the European Emission Trading Scheme is an example. By means of dynamic optimization in the contest of firms covered by such environmental regulations, this paper...

Estimation and modelling problems as they arise in many fields often turn out to be intractable by standard numerical methods. One way to deal with such a situation consists in simplifying models and procedures. However, the solutions to these simplified problems might not be satisfying. A...

We investigate portfolio selection with alternative objective functions in a distributed computing environment. In particular, we optimise a portfolio's 'Omega' which is the ratio of two partial moments of the returns distributions. Since finding optimal portfolios under such performance...

We construct portfolios with an alternative selection criterion, the Omega function, which can be expressed as the ratio of two partial moments of the returns distribution. Finding Omega-optimal portfolios, in particular under realistic constraints like cardinality restrictions, requires to...