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Inhomogeneous Random Evolutions: Limit Theorems and Financial Applications

Author

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  • Nelson Vadori

    (Department Mathematics & Statistics, University of Calgary, 2500 University Drive NW, Calgary, AB T2N 1N4, Canada)

  • Anatoliy Swishchuk

    (Department Mathematics & Statistics, University of Calgary, 2500 University Drive NW, Calgary, AB T2N 1N4, Canada)

Abstract

The paper is devoted to the inhomogeneous random evolutions (IHRE) and their applications in finance. We introduce and present some properties of IHRE. Then, we prove weak law of large numbers and central limit theorems for IHRE. Financial applications are given to illiquidity modeling using regime-switching time-inhomogeneous Levy price dynamics, to regime-switching Levy driven diffusion based price dynamics, and to a generalized version of the multi-asset model of price impact from distress selling, for which we retrieve and generalize their diffusion limit result for the price process.

Suggested Citation

  • Nelson Vadori & Anatoliy Swishchuk, 2019. "Inhomogeneous Random Evolutions: Limit Theorems and Financial Applications," Mathematics, MDPI, vol. 7(5), pages 1-62, May.
    • Handle: RePEc:gam:jmathe:v:7:y:2019:i:5:p:447-:d:232530
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    References listed on IDEAS

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