A dynamical model of the capital markets

J.W. Moffat

Physica A: Statistical Mechanics and its Applications, 1999, vol. 264, issue 3, 532-542

Abstract: A dynamical theory of the capital markets is proposed based on a continuous-time model and a basic differential equation that governs the price differential, derived by analogy from hydrodynamic flow. A critical number M determines the onset of turbulent behavior of volatility. Scaling laws are formulated for the time-series spectra of volatility distributions, which show intermittency associated with a fractal behavior of the distribution functions. This model may help in an understanding of volatility risk and the relationship between short- and long-term trading in the financial markets.

Date: 1999
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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:264:y:1999:i:3:p:532-542

DOI: 10.1016/S0378-4371(98)00453-1

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