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

Christof Henkel

Papers from arXiv.org

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 It\^o-diffusion price processes in the large market limit.

Date: 2016-09, Revised 2016-10
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1609.05286

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