Recovering Preferences from Finite Data. (arXiv:1909.05457v2 [econ.TH] UPDATED)

We study preferences recovered from finite choice experiments and provide sufficient conditions for convergence to a unique underlying “true” preference. Our conditions are weak, and therefore valid in a wide range of economic environments. We develop applications to expected utility theory, choice over consumption bundles, menu choice and intertemporal consumption. Our framework unifies the revealed…

Option pricing in exponential L\’evy models with transaction costs. (arXiv:1611.00389v6 [q-fin.MF] UPDATED)

We present an approach for pricing European call options in presence of proportional transaction costs, when the stock price follows a general exponential L\'{e}vy process. The model is a generalization of the celebrated work of Davis, Panas and Zariphopoulou (1993), where the value of the option is defined as the utility indifference price. This approach…

Pricing Variance Swaps on Time-Changed Markov Processes. (arXiv:1705.01069v3 [q-fin.MF] UPDATED)

We prove that the variance swap rate (fair strike) equals the price of a co-terminal European-style contract when the underlying is an exponential Markov process, time-changed by an arbitrary continuous stochastic clock, which has arbitrary correlation with the driving Markov process, provided that the payoff function $G$ of the European contract satisfies an ordinary integro-differential…

Simulation of Stylized Facts in Agent-Based Computational Economic Market Models. (arXiv:1812.02726v2 [econ.GN] UPDATED)

We study the qualitative and quantitative appearance of stylized facts in several agent-based computational economic market (ABCEM) models. We perform our simulations with the SABCEMM (Simulator for Agent-Based Computational Economic Market Models) tool recently introduced by the authors (Trimborn et al. 2019). Furthermore, we present novel ABCEM models created by recombining existing models and study…

Determining Fundamental Supply and Demand Curves in a Wholesale Electricity Market. (arXiv:1903.11383v2 [econ.GN] UPDATED)

In this paper we develop a novel method of wholesale electricity market modeling. Our optimization-based model decomposes wholesale supply and demand curves into buy and sell orders of individual market participants. In doing so, the model detects and removes arbitrage orders. As a result, we construct an innovative fundamental model of a wholesale electricity market.…