Olkhov, Victor (2022): The MarketBased Asset Price Probability.

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Abstract
We consider the timeseries records of the market trade values and volumes as the origin of the asset price stochasticity and describe random price properties through statistical moments of the market trade values and volumes. The marketbased price probability differs from the conventional price probability proportional to number of trades at price p. We show that the marketbased price probability results no correlations between nth degrees of price and trade volume but doesn’t cause statistical independence of price and trade volume. We derive the marketbased correlation between price and squares of the trade volumes. Timeseries records of the market trade values and volumes allow assess only finite number m of statistical moments and define first m price statistical moments. Approximations of the price characteristic function that match first m price statistical moments generate approximations of the marketbased price probability. That approach unifies description of the asset price, returns, inflation and their volatilities as functions of the market trade values and volumes statistical moments. That describes the case when investor’s market trades impact asset price probability. Marketbased approach uncovers vital fault of the ValueatRisk (VaR) as most conventional hedging tool. We show that accuracy of VaR assessment at horizon T is determined by precision of predictions of the market trade values and volumes statistical moments and depends on accuracy of macroeconomic forecasting. The marketbased approach to price probability establishes direct economic ties between the asset pricing, market stochasticity and economic theory.
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:  115382 
Depositing User:  Victor Olkhov 
Date Deposited:  17 Nov 2022 08:24 
Last Modified:  17 Nov 2022 08:24 
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URI:  https://mpra.ub.unimuenchen.de/id/eprint/115382 