Year: 2024
Author: Ben Duan, Yutian Li, Dawei Lu, Yang Lu, Ran Zhang
CSIAM Transactions on Applied Mathematics, Vol. 5 (2024), Iss. 1 : pp. 1–17
Abstract
The present paper proposes a new framework for describing the stock price dynamics. In the traditional geometric Brownian motion model and its variants, volatility plays a vital role. The modern studies of asset pricing expand around volatility, trying to improve the understanding of it and remove the gap between the theory and market data. Unlike this, we propose to replace volatility with trading volume in stock pricing models. This pricing strategy is based on two hypotheses: A price-volume relation with an idea borrowed from fluid flows and a white-noise hypothesis for the price rate of change (ROC) that is verified via statistic testing on actual market data. The new framework can be easily adopted to local volume and stochastic volume models for the option pricing problem, which will point out a new possible direction for this central problem in quantitative finance.
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Journal Article Details
Publisher Name: Global Science Press
Language: English
DOI: https://doi.org/10.4208/csiam-am.SO-2022-0030
CSIAM Transactions on Applied Mathematics, Vol. 5 (2024), Iss. 1 : pp. 1–17
Published online: 2024-01
AMS Subject Headings: Global Science Press
Copyright: COPYRIGHT: © Global Science Press
Pages: 17
Keywords: Asset pricing volatility trading volume stock price model white noise.