Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/174522
Authors: 
Bottazzi, Giulio
Giachini, Daniele
Year of Publication: 
2016
Series/Report no.: 
LEM Working Paper Series 2016/13
Abstract: 
The approximate agents' wealth and price invariant densities of the prediction market model presented in Kets et al.(2014) is derived using the Fokker-Planck equation of the associated continuous-time jump process. We show that the approximation obtained from the evolution of log-wealth difference can be reliably exploited to compute all the quantities of interest in all the acceptable parameter space. When the risk aversion of the trader is high enough, we are able to derive an explicit closed-form solution for the price distribution which is asymptotically correct.
Subjects: 
Prediction Markets
Heterogeneous Beliefs
Fractional Kelly Rule
Invariant Distribution
Diffusive Approximation
Fokker Planck Equation
JEL: 
C60
D53
G11
G12
Document Type: 
Working Paper

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