Speaker: Muruhan Rathinam, Mathematics, UMBC
Title: Modeling trader behavior and its effect on stock price dynamics

Abstract: In the modeling of stock markets it has been common practice to model the stock price process from a phenomenological point of view and traders are assumed not to influence this process. In this talk we present a first principles framework that models the interaction between trader behavior and the stock price dynamics. Our model starts with a continuous time discrete event description and under suitable scaling a coupled system of stochastic differential equations are derived. In addition to extraneous traders, we consider traders with three different types of trading strategies: value, momentum, and hedge traders. We show via analysis and numerical simulations that this simple model can explain some of the stylized features of the stock market such as stochastic volatility, volatility clustering, as well as the stock pinning phenomenon. This is joint work with James A. Primbs at Stanford.

Time: Friday, Oct. 2, 2009, 1:30-2:30 p.m.

Place: Science and Tech I, Room 242

Department of Mathematical Sciences
George Mason University
4400 University Drive, MS 3F2
Fairfax, VA 22030-4444
http://math.gmu.edu/
Tel. 703-993-1460, Fax. 703-993-1491