Project summary: Pricing financial securities
This research project has developed a continuous-time framework that relates excess demand functions of behaviourally-biased investors in an asset to the evolution of that asset’s price. This approach is the first attempt to relate, in a formal manner, the biases discussed in the Behavioural Finance literature to the types of stochastic volatility models that have been popular with both practitioners and academics for many years. A number of central ideas from Behavioural Finance are used, in particular the Representativeness Heuristic which encapsulates the idea that investors trade based on patterns that they see in time series data.

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