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Liquidity based modeling of asset price bubbles via random matching (2210.13804v2)
Published 25 Oct 2022 in q-fin.MF
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.