Spin models as microfoundation of macroscopic financial market models

Sebastian M. Krause and Stefan Bornholdt

Papers from arXiv.org

Abstract: Macroscopic price evolution models are commonly used for investment strategies. There are first promising achievements in defining microscopic agent based models for the same purpose. Microscopic models allow a deeper understanding of mechanisms in the market than the purely phenomenological macroscopic models, and thus bear the chance for better models for market regulation. We exemplify this strategy in a case study, deducing a macroscopic Langevin equation from a microscopic spin market model closely related to the Ising model. The interplay of the microscopic and the macroscopic view allows for a better understanding of the microscopic model, as well, and may guide the construction of agent based market models as basis of macroscopic price models.

Date: 2011-03
New Economics Papers: this item is included in nep-cmp
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