The Market-Based Asset Price Probability

Victor Olkhov

MPRA Paper from University Library of Munich, Germany

Abstract: This paper introduces the market-based asset price probability during time averaging interval Δ. We substitute the present problem of guessing the “correct” form of the asset price probability by description of the price probability as function of the market trade value and volume statistical moments during Δ. We define n-th price statistical moments as ratio of n-th statistical moments of the trade value to n-th statistical moments of the trade volume. That definition states no correlations between time-series of n-th power of the trade volume and price during Δ, but doesn’t result statistical independence between the trade volume and price. The set of price n-th statistical moments defines Taylor series of the price characteristic function. Approximations of the price characteristic function that reproduce only first m price statistical moments, generate approximations of the market-based price probability. That approach unifies probability description of market-based asset price, price indices, returns, inflation and their volatilities. Market-based price probability approach impacts the asset pricing models and uncovers hidden troubles and usage bounds of the widespread risk hedging tool – Value-at-Risk, lets you determine the price autocorrelations and revises the classical option pricing from one to two dimensional problem. Market-based approach doesn’t simplify the price probability puzzle but establishes direct economic ties between asset pricing, market randomness and economic theory. Description of the market-based price and returns volatility, Skewness and Kurtosis requires development of economic theories those model relations between second, third and forth order macroeconomic variables. Development of these theories will take a lot of efforts and years.

Keywords: asset price; price probability; returns; inflation; market trades (search for similar items in EconPapers)
JEL-codes: C01 C58 E31 E37 G12 G17 (search for similar items in EconPapers)
Date: 2022-05-15
New Economics Papers: this item is included in nep-fmk, nep-mac and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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https://mpra.ub.uni-muenchen.de/113096/1/MPRA_paper_113096.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/122973/1/MPRA_paper_122973.pdf revised version (application/pdf)
https://mpra.ub.uni-muenchen.de/114186/1/MPRA_paper_114186.pdf revised version (application/pdf)
https://mpra.ub.uni-muenchen.de/120026/8/MPRA_paper_120026.pdf revised version (application/pdf)

Related works:
Working Paper: Market-Based Asset Price Probability (2024)
Working Paper: The Market-Based Asset Price Probability (2022)
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