Seminar

Department of Systems Engineering and Engineering Management
The Chinese University of Hong Kong

Title: Stock Price and Market Maker Inventory Dynamics with Heterogeneous Beliefs

Speaker: Prof. Duo Wang
               Department of Financial Mathematics and Financial Engineering
               South China Normal University

Date : Apr. 13, 2012 (Friday)

Time: 4:30p.m.-5:30p.m.

Venue: Room 513
            William M.W. Mong Engineering Building
            (Engineering Building Complex Phase 2)
            CUHK

Abstract:
This paper examines the stabilizing role of a market maker who acts as both a liquidity trader and an active investor under the framework of bounded rationality. It does so by developing a stochastic dynamic asset price and market maker inventory model with heterogeneous agents changing their strategies asynchronously. Analysis of the corresponding deterministic model shows that the stabilizing role of the market maker is often limited and subtle, and can even destabilize a market when speculators are active.
The analysis also shows that, as an active investor, the market maker may have some incentive to destabilize the market. Numerical analysis of the stochastic model further demonstrates that the model is able to generate most of the stylized facts of asset returns and empirical patterns for market maker inventories observed in financial markets.

Biography:
Duo Wang is a professor at Department of Financial Mathematics and Financial Engineering, South China Normal University, China. His research interests include ordinary differential equations, normal form and bifurcation of dynamical systems, and financial dynamics. Prior to joining SCNU in 2008, he acted as chairman and professor of Department of Financial Mathematics, Peking University, China, from 1997 to 2008. He published one book and more than 50 journal papers since 1983.

************************* ALL ARE WELCOME ************************
Host: Prof. Nan Chen

Tel : (852) 3943-8237

Email: nchen@se.cuhk.edu.hk

Enquiries: Prof. Nan Chen or Prof. Sean X. Zhou
                 Department of Systems Engineering and Engineering Management
                 CUHK

Website: http://www.se.cuhk.edu.hk/~seem5201

Email: seem5201@se.cuhk.edu.hk

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