Spin models as microfoundation of macroscopic market models

Authored by Sebastian M. Krause, Stefan Bornholdt

Date Published: 2013-09-15

DOI: 10.1016/j.physa.2013.04.044

Sponsors: No sponsors listed

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Model Documentation: Other Narrative Mathematical description

Model Code URLs: Model code not found

Abstract

Macroscopic price evolution models are commonly used for investment strategies. There are first promising achievements in defining microscopic agent based models for the same purpose. Microscopic models allow a deeper understanding of mechanisms in the market than the purely phenomenological macroscopic models, and thus bear the chance for better models for market regulation. However microscopic models and macroscopic models are commonly studied separately. Here, we exemplify a unified view of a microscopic and a macroscopic market model in a case study, deducing a macroscopic Langevin equation from a microscopic spin market model closely related to the Ising model. The interplay of the microscopic and the macroscopic view allows for a better understanding and adjustment of the microscopic model, as well, and may guide the construction of agent based market models as basis of macroscopic models. (C) 2013 Elsevier B.V. All rights reserved.

Tags

Agent based models econophysics financial markets Ising model Macroscopic market models Microfoundation