This paper shows that high frequency trading may play a dysfunctional role in financial markets. Contrary to arbitrageurs who make financial markets more efficient by taking advantage of and thereby eliminating mispricings, high frequency traders can create a mispricing that they unknowingly...

This paper extends and refines the Jarrow et al. (2006, 2008) arbitrage free pricing theory for bubbles to characterize forward and futures prices. Some new insights are obtained in this regard. In particular, we: (i) provide a canonical process for asset price bubbles suitable for empirical...

This paper uses a conditional law of large numbers and a conditional central limit theorem to provide simplified asymptotic valuation formulas for credit derivatives on baskets, including synthetic and cash-flow CDOs. In particular, approximate pricing procedures are provided for synthetic and...

We use order book data combined with tick data to analyze the supply curve models of liquidity issues in stock and option market trading. We show that supply curves really exist, and further that for highly liquid stocks they are linear. For slightly less liquid stocks the supply curve tends to...

We give sufficient conditions on the underlying filtration such that all totally inaccessible stopping times have compensators which are absolutely continuous. If a semimartingale, strong Markov process X has a representation as a solution of a stochastic differential equation driven by a Wiener...