Financial variables, market transactions, and expectations as functions of risk

Artikel

This paper develops methods and a framework of financial market theory. We model financial markets as a system of agents which perform market transactions with other agents under the action of numerous expectations. Agents' expectations are formed of economic and financial variables, market transactions, the expectations of other agents, and other factors that impact financial markets. We use the risk ratings of agents as their coordinates and approximate a description of financial variables, market transactions, and expectations of numerous separate agents by density functions of aggregated agents in the economic domain. The motion of separate agents in the economic domain due to a change of agents' risk rating produces collective financial flows of variables, transactions, and expectations. We derive equations on collective financial variables, market transactions, expectations, and their flows in the economic domain. These flows define the evolution of financial markets. As an example, we present a simple model with linear dependence between disturbances of volume and the cost of transactions on one hand, and disturbances of expectations that determine transactions on the other hand. Our model describes harmonique oscillations of these disturbances with numerous frequencies and allows an explicit form for fluctuations of price and return to be derived. These relations show a direct dependence between price, return, and volume perturbations.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Journal: International Journal of Financial Studies ; ISSN: 2227-7072 ; Volume: 7 ; Year: 2019 ; Issue: 4 ; Pages: 1-27 ; Basel: MDPI

Classification and Topics

• Classification: Wirtschaft ; Mathematical and Quantitative Methods: General ; Business Fluctuations; Cycles ; Financial Markets and the Macroeconomy ; Financial Economics: General ; Asset Pricing; Trading Volume; Bond Interest Rates
• Subject: density functions ; financial flows ; financial markets ; risk ratings

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Olkhov, Victor
• Event: Veröffentlichung
• (who): MDPI
• (where): Basel
• (when): 2019

Further information

• DOI: doi:10.3390/ijfs7040066
• Handle: http://hdl.handle.net/10419/257664
• Last update: 10.03.2025, 11:43 AM CET