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The behavioral implications of the bilateral gamma process

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  • Xie, Haibin
  • Wang, Shouyang
  • Lu, Zudi

Abstract

Bilateral gamma process is widely used in risk management and asset pricing. However the behavioral implications of this process remain unknown. This paper investigates this problem for the first time within the framework of Tauchen and Pitts (1983). With the assumption that there are two types of traders in the market, the optimistic and the pessimistic, we find the bilateral gamma process can be derived from Walrasian equilibrium. This finding establishes the microstructure foundations for the bilateral gamma process.

Suggested Citation

  • Xie, Haibin & Wang, Shouyang & Lu, Zudi, 2018. "The behavioral implications of the bilateral gamma process," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 500(C), pages 259-264.
    • Handle: RePEc:eee:phsmap:v:500:y:2018:i:c:p:259-264
    DOI: 10.1016/j.physa.2018.02.121
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    References listed on IDEAS

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    Cited by:

    1. Song, Kai & Shi, Jian & Yi, Xiaojian, 2020. "A time-discrete and zero-adjusted gamma process model with application to degradation analysis," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 560(C).

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