Market dynamics after large financial crash

G. L. Buchbinder and K. M. Chistilin

Papers from arXiv.org

Abstract: The model describing market dynamics after a large financial crash is considered in terms of the stochastic differential equation of Ito. Physically, the model presents an overdamped Brownian particle moving in the nonstationary one-dimensional potential $U$ under the influence of the variable noise intensity, depending on the particle position $x$. Based on the empirical data the approximate estimation of the Kramers-Moyal coefficients $D_{1,2}$ allow to predicate quite definitely the behavior of the potential introduced by $D_1 = - \partial U /\partial x$ and the volatility $\sim \sqrt{D_2}$. It has been shown that the presented model describes well enough the best known empirical facts relative to the large financial crash of October 1987. \

Date: 2008-07
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:0807.2083

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