A dynamical price formation model for financial assets is presented. It aims
to capture the essence of speculative trading where mispricings of assets are
used to make profits. It is shown that together with the incorporation of the
concept of risk aversion of agents the model is able to reproduce several key
characteristics of financial price series. The approach is contrasted to the
conventional view of price formation in financial economics.Comment: contribution to the 6th Granada Seminar 2000: Modeling Complex
Systems, 10 pages, eps figure
