Inferring Fundamental Value And Crash Nonlinearity From Bubble Calibration
Identifying unambiguously the presence of a bubble in an asset price remains an unsolved problem in standard econometric and financial economic approaches. A large part of the problem is that the fundamental value of an asset is, in general, not directly observable and it is poorly constrained to calculate. Further, it is not possible to distinguish between an exponentially growing fundamental price and an exponentially growing bubble price. In this paper, the authors present a series of new models based on the Johansen-Ledoit-Sornette (JLS) model, which is a flexible tool to detect bubbles and predict changes of regime in financial markets.