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Walrasian-Samuelson Price Adjustment Model

Silas N. Onyango


We present a type of Itô process that models the adjustment of the market price of traded assets to new information affecting supply and demand of an asset. This model is based on supply and demand functions and the Walrasian price adjustment assumption that proportional price increase is driven by excess demand of the asset. We linearise the supply and demand curves about the market equilibrium point, and form a stochastic process that turns out to be logistic form of Brownian motions. Finally, we formulate a variant differential equation to Black-Scholes-Merton partial differential equation.


Excess demand function, Walrasian price adjustment model, Logistic Brownian motion, Black-Scholes-Merton partial differential equation.

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