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Interest in thermodynamic analogies in economics is older than the idea of von Neumann to look for market entropy in liquidity, advice that was not taken in any thermodynamic analogy presented so far in the literature. In this paper, we go further and use a standard strategy from trading theory...
Persistent link: https://www.econbiz.de/10010874647
In their path-finding 1973 paper, Black and Scholes presented two separate derivations of their famous option pricing partial differential equation. The second derivation was from the standpoint that was Black's original motivation, namely, the capital asset pricing model (CAPM). We show here,...
Persistent link: https://www.econbiz.de/10010874758
The question of information cascades in finance appears in the literature. We use the dynamics of Kolmogorov's 1962 (K62) turbulence model, an example of multiaffine scaling, to illustrate how evidence for diffusion from large to small length scales, or correspondingly an information cascade...
Persistent link: https://www.econbiz.de/10010871733
This paper reports several entirely new results on financial market dynamics and option pricing. We observe that empirical distributions of returns are much better approximated by an exponential distribution than by a Gaussian. This exponential distribution of asset prices can be used to develop...
Persistent link: https://www.econbiz.de/10010589405