From quantum mechanics to finance: Microfoundations for jumps, spikes and high volatility phases in diffusion price processes
Authored by Christof Henkel
Date Published: 2017
DOI: 10.1016/j.physa.2016.11.125
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Abstract
We present an agent behavior based microscopic model that induces jumps,
spikes and high volatility phases in the price process of a traded
asset. We transfer dynamics of thermally activated jumps of an
unexcited/excited two state system discussed in the context of quantum
mechanics to agent socio-economic behavior and provide microfoundations.
After we link the endogenous agent behavior to price dynamics we
establish the circumstances under which the dynamics converge to an
Ito-diffusion price processes in the large market limit. (C) 2016
Elsevier B.V. All rights reserved.
Tags
econophysics
Dynamics
networks
Model
Contagion
diffusion process
behavioral finance
Markets
Approximations
Microscopic foundations
Agent
based model
Jumps
Spikes