Financial Informatics

The Brody-Hughston-Macrina approach to information-based asset pricing introduces a new way of looking at the mechanisms determining price movements in financial markets. The resulting theory of financial informatics is applicable across a wide range of asset classes and is distinguished by its emphasis on the explicit modelling of market information flows. In the BHM theory, each asset is defined by a collection of cash flows and each such cash flow is associated with a family of one or more so-called information processes that provide partial information about the cash flow. The theory is highly appealing on an intuitive basis: it is directly applicable to trading, investment and risk management — and yet at the same time leads to interesting mathematics. The present volume brings together a collection of 18 foundational papers of the subject by Brody, Hughston, and Macrina, many written in collaboration with various co-authors. There is a preface summarizing the current status of the theory, together with a brief history and bibliography of the subject. This book will be of great interest both to newcomers to financial mathematics as well as to established researchers in the subject.

Contents:

• Preface
• About the Editors
• Beyond Hazard Rates: A New Framework for Credit-Risk Modelling (Dorje C Brody, Lane P Hughston and Andrea Macrina)
• Information-Based Asset Pricing (Dorje C Brody, Lane P Hughston and Andrea Macrina)
• Dam Rain and Cumulative Gain (Dorje C Brody, Lane P Hughston and Andrea Macrina)
• Informed Traders (Dorje C Brody, Mark H A Davis, Robyn L Friedman and Lane P Hughston)
• Information of Interest (Dorje C Brody and Robyn L Friedman)
• Credit Risk, Market Sentiment and Randomly-Timed Default (Dorje C Brody, Lane P Hughston and Andrea Macrina)
• Lévy Random Bridges and the Modelling of Financial Information (Edward Hoyle, Lane P Hughston and Andrea Macrina)
• Modelling Information Flows in Financial Markets (Dorje C Brody, Lane P Hughston and Andrea Macrina)
• Heat Kernel Interest Rate Models with Time-Inhomogeneous Markov Processes (Jirô Akahori and Andrea Macrina)
• Lévy Information and the Aggregation of Risk Aversion (Dorje C Brody and Lane P Hughston)
• Signal Processing with Lévy Information (Dorje C Brody, Lane P Hughston and Xun Yang)
• Heat Kernel Models for Asset Pricing (Andrea Macrina)
• Randomized Mixture Models for Pricing Kernels (Andrea Macrina and Priyanka A Parbhoo)
• Stochastic Modelling with Randomized Markov Bridges (Andrea Macrina and Jun Sekine)
• Modulated Information Flows in Financial Markets (Edward Hoyle, Andrea Macrina and Levent Ali Mengütürk)
• Pricing with Variance Gamma Information (Lane P Hughston and Leandro Sánchez-Betancourt)
• On the Pricing of Storable Commodities (Dorje C Brody, Lane P Hughston and Xun Yang)
• Mathematical Models for Fake News (Dorje C Brody and David M Meier)

Readership: University academics and graduate students specialising in mathematical finance, financial mathematics, insurance, asset pricing, and financial engineering.