Mathematical Finance Seminar
February 22, 2001 , 5:30 PM to 7:00 PM
Duncan Foley, New School University and Columbia University
Statistical equilibrium issues in financial market modeling.
The statistical equilibrium model of a simple market for a
financial asset confined to buyers and sellers predicts a dispersion
of transaction prices which could be exploited profitably by an
arbitrageur able to take positions on both sides of the market. When
the measure of arbitrageurs becomes significant compared to the
measure of the fundamental buyers and sellers, the effect of
arbitrage is to reduce the dispersion of fundamental transaction
prices. Issues of time and interpretation of the resulting theory of
fluctuations remain only partially resolved.