A simple financial market model with chartists and fundamentalists: Market entry levels and discontinuities

Fabio Tramontana, Frank Westerhoff and Laura Gardini ()

Mathematics and Computers in Simulation (MATCOM), 2015, vol. 108, issue C, 16-40

Abstract: We present a simple financial market model with interacting chartists and fundamentalists. Since some speculators only become active when a certain misalignment level has been crossed, the model dynamics is driven by a discontinuous piecewise linear map. Recent mathematical techniques allow a comprehensive study of the model's dynamical system. One of its surprising features is that model simulations may appear to be chaotic, although only regular dynamics can emerge. While our deterministic model is able to produce stylized bubbles and crashes we also show that a stochastic version of our model is able to match the finer details of financial market dynamics.

Keywords: Financial market crisis; Bull and bear market dynamics; Discontinuous piecewise linear maps; Border-collision bifurcations; Periodadding scheme (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (9)

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Working Paper: A simple financial market model with chartists and fundamentalists: market entry levels and discontinuities (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:matcom:v:108:y:2015:i:c:p:16-40

DOI: 10.1016/j.matcom.2013.06.002

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