Simulation of a financial market: The possibility of catastrophic disequilibrium

Amit Sinha, Philip A. Horvath, Tyler Beason and Kelly R. Roos

Chaos, Solitons & Fractals, 2019, vol. 125, issue C, 13-16

Abstract: We use kinetic Monte Carlo simulations to produce solutions of an agent-based, rate equation model of an informationally efficient, closed financial market. The simulations produce a crash in the market that is forewarned through the observation of a market instability from which the market temporarily recovers. The market remained in a quasi-stable state for a relatively large amount of time between the warning and the crash, raising the prospect that some mitigating action can be taken in time to avert the impending crash. This result has strong ramifications for the future of predicting calamitous market events, especially if some observable aspect of financial markets can be positively identified and associated with simulation parameters.

Keywords: Nonlinear rate equations; Kinetic Monte Carlo simulation; Mean-field theory; Agent-based models; Financial markets (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:chsofr:v:125:y:2019:i:c:p:13-16

DOI: 10.1016/j.chaos.2019.05.011

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