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In this paper, a class of forward rate dependent Markovian transformations of the Heath-Jarrow-Morton [HJM92] term structure model are obtained by considering volatility processes that are solutions of linear ordinary differential equations. These transformations generalise the Markovian systems obtained by Carverhill [Car94], Ritchken and(More)
In the last months, the world's economies were confronted with the largest economic recession since the Great Depression. The occurrence of a worldwide financial market meltdown as a consequence originally stemming from of the crisis in the US subprime housing sector was only prevented by extraordinary monetary and fiscal policy measures implemented at the(More)
Recognizing that the economy is a complex system with boundedly rational interacting agents, the book presents a theory of behavioral rationality and heterogeneous expectations in complex economic systems and confronts the nonlinear dynamic models with empirical stylized facts and laboratory experiments. The complexity model-ing paradigm has been strongly(More)
This paper develops an adaptive model on asset pricing and wealth dynamic of a financial market with heterogeneous agents and examines the profitability of momentum and contrarian trading strategies. In order to characterize asset price, wealth dynamics and rational adaptiveness arising from the interaction of heterogeneous agents with CRRA utility, an(More)
This paper will build on earlier work of Chiarella, He and Hommes (2006) (CHH) who investigate the stabilising and destabilising impact on financial markets of the commonly used moving average rules. The model of CHH relied on a market maker mechanism to clear the market. Here we shall consider a continuous double auction as the market clearing mechanism.(More)
In this paper we study a model of a quantity-setting duopoly market where firms lack knowledge of the market demand. Using a misspecified demand function firms determine their profit-maximizing choices of their corresponding perceived market game. For illustrative purposes we assume that the (true) demand function is linear and that the reaction functions(More)
This paper studies a class of models in which agents' expectations influence the actual dynamics while the expectations themselves are the outcome of some recursive processes with bounded memory. Under the assumptions of heterogeneous expectations (or beliefs) and that the agents update their expectations by recursive Land general a L-processes, the(More)