A dynamical stochastic coupled model for financial markets

T.E. Govindan, Carlos Ibarra-Valdez and J. Ruiz de Chávez

Physica A: Statistical Mechanics and its Applications, 2007, vol. 381, issue C, 317-328

Abstract: A model coupling a deterministic dynamical system which represents trading, with a stochastic one that represents asset prices evolution is presented. Both parts of the model have connections with well established dynamic models in mathematical economics and finance. The main objective is to represent the double feedback between trading dynamics (the demand/supply interaction) and price dynamics (assumed as largely random). We present the model, and address to some extent existence and uniqueness, continuity with respect to initial conditions and stability of solutions. The non-Lipschitz case is briefly considered as well.

Keywords: Stochastic coupled model; Trading; Itô equation; Lipschitz condition; Existence; Continuous dependence; Stability (search for similar items in EconPapers)
Date: 2007
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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:381:y:2007:i:c:p:317-328

DOI: 10.1016/j.physa.2007.03.014

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