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Probability Theory and Stochastic Modelling

Dynamic Markov Bridges and Market Microstructure

Theory and Applications

Authors: Cetin, Umut, Danilova, Albina

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  • Cutting-edge interdisciplinary research in the areas of applied statistics, mathematics, finance, and economics
  • First comprehensive text on using Dynamic Markov Bridges to study asymmetric information among market participants
  • Offers real-world applications of Markov processes to explain and evaluate market microstructure models
  • Examines the case of risk-averse market makers and their implications on equilibrium pricing
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eBook 71,39 €
price for Spain (gross)
  • ISBN 978-1-4939-8835-8
  • Digitally watermarked, DRM-free
  • Included format: EPUB, PDF
  • ebooks can be used on all reading devices
  • Immediate eBook download after purchase
Hardcover 88,39 €
price for Spain (gross)
  • Due: December 7, 2018
  • ISBN 978-1-4939-8833-4
  • Free shipping for individuals worldwide
  • The final prices may differ from the prices shown due to specifics of VAT rules
About this book

This book undertakes a detailed construction of Dynamic Markov Bridges using a combination of theory and real-world applications to drive home important concepts and methodologies. In Part I, theory is developed using tools from stochastic filtering, partial differential equations, Markov processes, and their interplay. Part II is devoted to the applications of the theory developed in Part I to asymmetric information models among financial agents, which include a strategic risk-neutral insider who possesses a private signal concerning the future value of the traded asset, non-strategic noise traders, and competitive risk-neutral market makers. A thorough analysis of optimality conditions for risk-neutral insiders  is provided and the implications on equilibrium of non-Gaussian extensions are discussed.

A Markov bridge, first considered by Paul Lévy in the context of Brownian motion, is a mathematical system that undergoes changes in value from one state to another when the initial and final states are fixed. Markov bridges have many applications as stochastic models of real-world processes, especially within the areas of Economics and Finance. The construction of a Dynamic Markov Bridge, a useful extension of Markov bridge theory, addresses several important questions concerning how financial markets function, among them: how the presence of an insider trader impacts market efficiency; how insider trading on financial markets can be detected; how information assimilates in market prices; and the optimal pricing policy of a particular market maker.
Principles in this book will appeal to probabilists, statisticians, economists, researchers, and graduate students interested in Markov bridges and market microstructure theory.

About the authors

Umut Çetin is Professor of Statistics at the London School of Economics, where he is also Co-director of the Financial Mathematics and Statistics bachelor's program. His research interests include stochastic calculus, theory of martingales and Markov processes, linear and nonlinear filtering and market microstructure. He has published numerous papers in peer-reviewed journals, including Springer’s Finance and Stochastics.
Albina Danilova is Associate Professor of Mathematics at the London School of Economics (LSE). Her research interests span asymmetric information models, market microstructure, stochastic control, and equilibrium theory.

Table of contents (8 chapters)

Table of contents (8 chapters)

Buy this book

eBook 71,39 €
price for Spain (gross)
  • ISBN 978-1-4939-8835-8
  • Digitally watermarked, DRM-free
  • Included format: EPUB, PDF
  • ebooks can be used on all reading devices
  • Immediate eBook download after purchase
Hardcover 88,39 €
price for Spain (gross)
  • Due: December 7, 2018
  • ISBN 978-1-4939-8833-4
  • Free shipping for individuals worldwide
  • The final prices may differ from the prices shown due to specifics of VAT rules
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Bibliographic Information

Bibliographic Information
Book Title
Dynamic Markov Bridges and Market Microstructure
Book Subtitle
Theory and Applications
Authors
Series Title
Probability Theory and Stochastic Modelling
Series Volume
90
Copyright
2018
Publisher
Springer-Verlag New York
Copyright Holder
Springer Science+Business Media, LLC, part of Springer Nature
eBook ISBN
978-1-4939-8835-8
DOI
10.1007/978-1-4939-8835-8
Hardcover ISBN
978-1-4939-8833-4
Series ISSN
2199-3130
Edition Number
1
Number of Pages
XIV, 234
Topics