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Liquidity based modeling of asset price bubbles via random matching

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Listed:
  • Francesca Biagini
  • Andrea Mazzon
  • Thilo Meyer-Brandis
  • Katharina Oberpriller

Abstract

In this paper we study the evolution of asset price bubbles driven by contagion effects spreading among investors via a random matching mechanism in a discrete-time version of the liquidity based model of [25]. To this scope, we extend the Markov conditionally independent dynamic directed random matching of [13] to a stochastic setting to include stochastic exogenous factors in the model. We derive conditions guaranteeing that the financial market model is arbitrage-free and present some numerical simulation illustrating our approach.

Suggested Citation

  • Francesca Biagini & Andrea Mazzon & Thilo Meyer-Brandis & Katharina Oberpriller, 2022. "Liquidity based modeling of asset price bubbles via random matching," Papers 2210.13804, arXiv.org, revised Nov 2022.
    • Handle: RePEc:arx:papers:2210.13804
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    References listed on IDEAS

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