Institutional Research Information Service
UCL Logo
Please report any queries concerning the funding data grouped in the sections named "Externally Awarded" or "Internally Disbursed" (shown on the profile page) to your Research Finance Administrator. Your can find your Research Finance Administrator at https://www.ucl.ac.uk/finance/research/rs-contacts.php by entering your department
Please report any queries concerning the student data shown on the profile page to:

Email: portico-services@ucl.ac.uk

Help Desk: http://www.ucl.ac.uk/ras/portico/helpdesk
Publication Detail
Modulated information flows in financial markets
  • Publication Type:
  • Authors:
    Macrina A, Menguturk LA
  • Publication date:
  • Pagination:
    335, 369
  • ISBN-13:
  • Status:
  • Book title:
    Financial Informatics: An Information-based Approach To Asset Pricing
We model continuous-time information flows generated by a number of information sources that switch on and off at random times. By modulating a multi-dimensional Lévy random bridge over a random point field, our framework relates the discovery of relevant new information sources to jumps in conditional expectation martingales. In the canonical Brownian random bridge case, we show that the underlying measure-valued process follows jump-diffusion dynamics, where the jumps are governed by information switches. The dynamic representation gives rise to a set of stochastically-linked Brownian motions on random time intervals that capture evolving information states, as well as to a state-dependent stochastic volatility evolution with jumps. The nature of information flows usually exhibits complex behavior, however, we maintain analytic tractability by introducing what we term the effective and complementary information processes, which dynamically incorporate active and inactive information, respectively. As an application, we price a financial vanilla option, which we prove is expressed by a weighted sum of option values based on the possible state configurations at expiry. This result may be viewed as an information-based analogue of Merton's option price, but where jumpdiffusion arises endogenously. The proposed information flows also lend themselves to the quantification of asymmetric informational advantage among competitive agents, a feature we analyze by notions of information geometry.
Publication data is maintained in RPS. Visit https://rps.ucl.ac.uk
 More search options
UCL Researchers
Dept of Mathematics
University College London - Gower Street - London - WC1E 6BT Tel:+44 (0)20 7679 2000

© UCL 1999–2011

Search by