From quantum mechanics to finance: Microfoundations for jumps, spikes and high volatility phases in diffusion price processes
Physica A: Statistical Mechanics and its Applications, 2017, vol. 469, issue C, 447-458
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)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:469:y:2017:i:c:p:447-458
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