Olkhov, Victor (2020): Price, Volatility and the SecondOrder Economic Theory.
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Abstract
This paper considers price volatility as the reason for description of the seconddegree economic variables, trades and expectations aggregated during certain time interval Δ. We call it  the secondorder economic theory. The nth degree products of costs and volumes of trades, performed by economic agents during interval Δ determine price nth statistical moments. First two price statistical moments define volatility. To model volatility one needs description of the squares of trades aggregated during interval Δ. To describe price probability one needs all nth statistical moments of price but that is almost impossible. We define squares of agent’s trades and macro expectations those approve the seconddegree trades aggregated during interval Δ. We believe that agents perform trades under action of multiple expectations. We derive equations on the seconddegree trades and expectations in economic space. As economic space we regard numerical continuous risk grades. Numerical risk grades are discussed at least for 80 years. We propose that econometrics permit accomplish risk assessment for almost all economic agents. Agents risk ratings distribute agents by economic space and define densities of macro seconddegree trades and expectations. In the linear approximation we derive mean square price and volatility disturbances as functions of the first and seconddegree trades disturbances. In simple approximation numerous expectations and their perturbations can cause small harmonic oscillations of the seconddegree trades disturbances and induce harmonic oscillations of price and volatility perturbations.
Item Type:  MPRA Paper 

Original Title:  Price, Volatility and the SecondOrder Economic Theory 
English Title:  Price, Volatility and the SecondOrder Economic Theory 
Language:  English 
Keywords:  volatility; economic theory; market trades; expectations; price probability 
Subjects:  C  Mathematical and Quantitative Methods > C1  Econometric and Statistical Methods and Methodology: General D  Microeconomics > D4  Market Structure, Pricing, and Design E  Macroeconomics and Monetary Economics > E4  Money and Interest Rates G  Financial Economics > G1  General Financial Markets G  Financial Economics > G2  Financial Institutions and Services 
Item ID:  102767 
Depositing User:  Victor Olkhov 
Date Deposited:  09 Sep 2020 15:36 
Last Modified:  09 Sep 2020 15:36 
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URI:  https://mpra.ub.unimuenchen.de/id/eprint/102767 
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