Olkhov, Victor (2022): The MarketBased Asset Price Probability.
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Abstract
This paper considers asset price as a random variable during the averaging interval Δ and introduces the marketbased price probability. We substitute the problem of guessing the “correct” form of the asset price probability by approximate description of random price properties by the finite number of price statistical moments determined by statistical moments of the market trade value and volume during Δ. We extend the wellknown definition of the volume weighted average price (VWAP) presented more than 30 years ago and introduce market price nth statistical moments as nth power volume weighted average. That results in zero correlations between timeseries of nth power of the trade volume and price during Δ, but doesn’t cause statistical independence between trade volume and price. As example we derive expression for correlation between timeseries of the market price and squares of the trade volume. The market trades records during Δ allow assess only finite number of statistical moments. Approximations of the price characteristic function that reproduce first m price statistical moments generate approximations of the marketbased price probability. That approach unifies description of the asset price, price indices, returns, inflation and their volatilities. Marketbased approach impacts the asset pricing models and uncovers hidden vital fault of the widely used hedging tool – ValueatRisk. Our approach doesn’t simplify the random price puzzle but establishes direct economic ties and relations between asset pricing, market stochasticity and economic theory. Description of the marketbased price and returns volatility, Skewness and Kurtosis requires development of the economic theories those model relations between the second, third and forth order macroeconomic variables. Development of these theories will take a lot of efforts and years.
Item Type:  MPRA Paper 

Original Title:  The MarketBased Asset Price Probability 
English Title:  The MarketBased Asset Price Probability 
Language:  English 
Keywords:  asset price; price probability; returns; inflation; market trades 
Subjects:  C  Mathematical and Quantitative Methods > C0  General > C01  Econometrics C  Mathematical and Quantitative Methods > C5  Econometric Modeling > C58  Financial Econometrics E  Macroeconomics and Monetary Economics > E3  Prices, Business Fluctuations, and Cycles > E31  Price Level ; Inflation ; Deflation E  Macroeconomics and Monetary Economics > E3  Prices, Business Fluctuations, and Cycles > E37  Forecasting and Simulation: Models and Applications G  Financial Economics > G1  General Financial Markets > G12  Asset Pricing ; Trading Volume ; Bond Interest Rates G  Financial Economics > G1  General Financial Markets > G17  Financial Forecasting and Simulation 
Item ID:  114186 
Depositing User:  Victor Olkhov 
Date Deposited:  15 Aug 2022 02:23 
Last Modified:  15 Aug 2022 02:23 
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URI:  https://mpra.ub.unimuenchen.de/id/eprint/114186 
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 The MarketBased Asset Price Probability. (deposited 15 Aug 2022 02:23) [Currently Displayed]