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From quantum mechanics to finance: Microfoundations for jumps, spikes and high volatility phases in diffusion price processes

Christof Henkel

Physica A: Statistical Mechanics and its Applications, 2017, vol. 469, issue C, 447-458

Abstract: We present an agent behavior based microscopic model that induces jumps, spikes and high volatility phases in the price process of a traded asset. We transfer dynamics of thermally activated jumps of an unexcited/excited two state system discussed in the context of quantum mechanics to agent socio-economic behavior and provide microfoundations. After we link the endogenous agent behavior to price dynamics we establish the circumstances under which the dynamics converge to an Itô-diffusion price processes in the large market limit.

Keywords: Behavioral finance; Diffusion process; Microscopic foundations; Agent based model; Econophysics; Jumps; Spikes (search for similar items in EconPapers)
Date: 2017
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Physica A: Statistical Mechanics and its Applications is currently edited by K. A. Dawson, J. O. Indekeu, H.E. Stanley and C. Tsallis

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