Class Year




Document Type


Distinguished Thesis


Degree Name

Bachelor of Arts (BA)

Department or Program


First Advisor

Jeffrey Sundberg

Second Advisor

DeJuran Richardson

Third Advisor

Kent Grote


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.

Included in

Finance Commons