Mean Field Limit of a Behavioral Financial Market Model

Torsten Trimborn, Martin Frank and Stephan Martin

Papers from arXiv.org

Abstract: In the past decade there has been a growing interest in agent-based econophysical financial market models. The goal of these models is to gain further insights into stylized facts of financial data. We derive the mean field limit of the econophysical model by Cross, Grinfeld, Lamba and Seaman (Physica A, 354) and show that the kinetic limit is a good approximation of the original model. Our kinetic model is able to replicate some of the most prominent stylized facts, namely fat-tails of asset returns, uncorrelated stock price returns and volatility clustering. Interestingly, psychological misperceptions of investors can be accounted to be the origin of the appearance of stylized facts. The mesoscopic model allows us to study the model analytically. We derive steady state solutions and entropy bounds of the deterministic skeleton. These first analytical results already guide us to explanations for the complex dynamics of the model.

Date: 2017-11
New Economics Papers: this item is included in nep-fmk and nep-hme
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://arxiv.org/pdf/1711.02573 Latest version (application/pdf)

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:arx:papers:1711.02573

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().