Long scale evolution of a nonlinear stochastic dynamic system for modeling market price bubbles

S. A. Kiselev, Andy Phillips, I. Gabitov

Research output: Contribution to journalArticle

6 Scopus citations

Abstract

This Letter investigates the stochastic dynamics of a simplified agent-based microscopic model describing stock market evolution. Our mathematical model includes a stochastic market and a sealed-bid double auction. The dynamics of the model are determined by the game of two types of traders: (i) 'intelligent' traders whose strategy is based on nonlinear technical data analysis1 and (ii) 'random' traders that act without a consistent strategy. We demonstrate the effect of time-scale separations on the market dynamics. We study the characteristics of the market relaxation in response to perturbations caused by large cash flows generated between these two groups of traders. We also demonstrate that our model exhibits the formation of a price bubble2 and the subsequent transition to a bear market. (C) 2000 Elsevier Science B.V.

Original languageEnglish (US)
Pages (from-to)130-142
Number of pages13
JournalPhysics Letters, Section A: General, Atomic and Solid State Physics
Volume272
Issue number1-2
DOIs
StatePublished - Jul 17 2000
Externally publishedYes

Keywords

  • Complex dynamics
  • Non-equilibrium phenomena
  • Stochastic processes
  • Theory and models of chaotic systems

ASJC Scopus subject areas

  • Physics and Astronomy(all)

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