Bachelor of Arts (BA)
Department or Program
A framework is developed that allows the use of various valuation methods and pricing schemes. The framework is then applied to two simple one-asset models. These models are analyzed to see how changing valuations and the existence of cognitive biases such as an endowment effect and an availability heuristic can affect future prices. Instead of searching for an equilibrium and proving its stability this paper examines what causes deviations from equilibrium. Additionally, a stochastic differential equation is developed to model how group populations change over time, such as noise trader populations, and to introduce evolution into a simple model. Graphs of the stochastic differential equation are presented and are used to examine whether arbitrageurs can eliminate noise traders from the market. The key features of this thesis are the application of ideas in new ways and the discussion of current and suggested methods in the literature.
Acevski, Daniel, "An Examination of Asset Mispricing in a Simple One-Asset Market" (2015). Senior Theses.