Olkhov, Victor (2020): Price, Volatility and the SecondOrder Economic Theory.
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Abstract
This paper models price volatility through description of the seconddegree transactions and expectations averaged by time interval Δ. We call it  the secondorder economic theory. 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 should model all nth price statistical moments but that seems almost implausible. Hence the desire to find out the price probability will remain unfeasible. We assume that it is possible to accomplish risk assessment for almost all economic agents. Agents risk ratings distribute agents, their transactions and expectations in economic space determined by numerical continuous risk grades. We define aggregate squares of agents transactions and introduce expectations those approve the seconddegree transactions executed during interval Δ. We derive equations on the seconddegree transactions and expectations in economic space. 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:  103359 
Depositing User:  Victor Olkhov 
Date Deposited:  09 Oct 2020 11:22 
Last Modified:  18 Sep 2024 08:00 
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URI:  https://mpra.ub.unimuenchen.de/id/eprint/103359 
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Price, Volatility and the SecondOrder Economic Theory. (deposited 09 Sep 2020 15:36)
 Price, Volatility and the SecondOrder Economic Theory. (deposited 09 Oct 2020 11:22) [Currently Displayed]