Wealth and price distribution by difusive approximation in a repeated prediction market

Arbeitspapier

The approximate agents' wealth and price invariant densities of the prediction market model presented in Kets et al.(2014) is derived using the Fokker-Planck equation of the associated continuous-time jump process. We show that the approximation obtained from the evolution of log-wealth difference can be reliably exploited to compute all the quantities of interest in all the acceptable parameter space. When the risk aversion of the trader is high enough, we are able to derive an explicit closed-form solution for the price distribution which is asymptotically correct.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: LEM Working Paper Series ; No. 2016/13

Classification and Topics

• Classification: Wirtschaft ; Mathematical Methods; Programming Models; Mathematical and Simulation Modeling: General ; General Equilibrium and Disequilibrium: Financial Markets ; Portfolio Choice; Investment Decisions ; Asset Pricing; Trading Volume; Bond Interest Rates
• Subject: Prediction Markets ; Heterogeneous Beliefs ; Fractional Kelly Rule ; Invariant Distribution ; Diffusive Approximation ; Fokker Planck Equation

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Bottazzi, Giulio ; Giachini, Daniele
• Event: Veröffentlichung
• (who): Scuola Superiore Sant'Anna, Laboratory of Economics and Management (LEM)
• (where): Pisa
• (when): 2016

Further information

• Handle: http://hdl.handle.net/10419/174522
• Last update: 10.03.2025, 11:45 AM CET