Nonlinear fluctuation analysis of statistical physics financial dynamics

Linlu Jia, Jinchuan Ke and Jun Wang
Additional contact information
Linlu Jia: School of Economics and Management, Beijing Jiaotong University, Beijing, P. R. China2School of Science, Beijing Jiaotong University, Beijing, P. R. China
Jinchuan Ke: School of Economics and Management, Beijing Jiaotong University, Beijing, P. R. China2School of Science, Beijing Jiaotong University, Beijing, P. R. China
Jun Wang: School of Economics and Management, Beijing Jiaotong University, Beijing, P. R. China2School of Science, Beijing Jiaotong University, Beijing, P. R. China

International Journal of Modern Physics C (IJMPC), 2022, vol. 33, issue 09, 1-24

Abstract: Based on the multi-color contact process and the oriented percolation, this paper develops a novel statistical physics financial price model with jumps to simulate and understand the price fluctuation characteristics in the real market. In this model, the interaction between investors and the dynamic changes of their investment attitudes and strategies are simulated by the complex interactions between different states of particles in the multi-color contact process. This is considered to lead to the rise and fall of the prices of financial products and affect the financial market price fluctuations. In addition, the herd behavior of investors facing sudden information outside the market also leads to dramatic price jumps. The model uses the oriented percolation combined with the Poisson process to describe those sudden fluctuations, in which the magnitude of the price jump of financial product is reconstructed by the clusters of partial interactions in the system. Therefore, the model constructs a total price process by considering both normal price fluctuations caused by the interaction of investor attitudes and sudden price jump fluctuations caused by the herd behavior. Based on the proposed model, this paper selects different parameter sets to generate the simulated return series and studies some basic descriptive statistics, stylized facts, multi-fractal property and complexity behavior of the simulated return series. To verify the rationality of the model, this paper conducts the same analysis and comparison on the return series of the real financial market. The outcomes of analysis indicate that the model proposed in this paper can reproduce the main fluctuation characteristics in the real financial market to a certain extent.

Keywords: Nonlinear fluctuation analysis; financial price model; statistical physics system; multi-color contact process; oriented percolation; complexity behavior (search for similar items in EconPapers)
Date: 2022
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.worldscientific.com/doi/abs/10.1142/S0129183122501170
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wsi:ijmpcx:v:33:y:2022:i:09:n:s0129183122501170

Ordering information: This journal article can be ordered from

DOI: 10.1142/S0129183122501170

Access Statistics for this article

International Journal of Modern Physics C (IJMPC) is currently edited by H. J. Herrmann

More articles in International Journal of Modern Physics C (IJMPC) from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().