Identifying Stock Market Bubbles

Modeling Illiquidity Premium and Bid-Ask Prices of Financial Securities

  • Azar┬áKarimov

Part of the Contributions to Management Science book series (MANAGEMENT SC.)

Table of contents

  1. Front Matter
    Pages i-xxi
  2. Azar Karimov
    Pages 1-3
  3. Azar Karimov
    Pages 5-12
  4. Azar Karimov
    Pages 13-21
  5. Azar Karimov
    Pages 23-35
  6. Azar Karimov
    Pages 119-121
  7. Back Matter
    Pages 123-131

About this book

Introduction

This book introduces readers to a new approach to identifying stock market bubbles by using the illiquidity premium, a parameter derived by employing conic finance theory. Further, it shows how to develop the closed form formulas of the bid and ask prices of European options by using Black-Scholes and Kou models. By using the derived formulas and sliding windows technique, the book explains how to numerically calculate illiquidity premiums. The methods introduced here will enable readers interested in risk management, portfolio optimization and hedging in real-time to identify when asset prices are in a bubble state and when that bubble bursts. Moreover, the techniques discussed will allow them to accurately recognize periods of exuberance and panic, and to measure how different strategies work during these phases with respect to calmer periods of market behavior. A brief history of financial bubbles and an outlook on future developments serve to round out the coverage.

Keywords

conic finance bid-ask prices Kou model illiquidity premium extended Black Scholes model asset price bubbles derived formulas sliding windows technique

Authors and affiliations

  • Azar┬áKarimov
    • 1
  1. 1.Institute of Applied MathematicsMiddle East Technical UniversityAnkaraTurkey

Bibliographic information

  • DOI https://doi.org/10.1007/978-3-319-65009-8
  • Copyright Information Springer International Publishing AG 2017
  • Publisher Name Springer, Cham
  • eBook Packages Economics and Finance
  • Print ISBN 978-3-319-65008-1
  • Online ISBN 978-3-319-65009-8
  • Series Print ISSN 1431-1941
  • Series Online ISSN 2197-716X
  • About this book