Dynamical model of financial markets: fluctuating ‘temperature’ causes intermittent behavior of price changes
We present a model of financial markets originally proposed for a turbulent flow, as a dynamic basis of its intermittent behavior. Time evolution of the price change is assumed to be described by Brownian motion in a power-law potential, where the ‘temperature’ fluctuates slowly. The model generally yields a fat-tailed distribution of the price change. Specifically a Tsallis distribution is obtained if the inverse temperature is χ2-distributed, which qualitatively agrees with intraday data of foreign exchange market. The so-called ‘volatility’, a quantity indicating the risk or activity in financial markets, corresponds to the temperature of markets and its fluctuation leads to intermittency.
Year of publication: |
2003
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Authors: | Kozuki, Naoki ; Fuchikami, Nobuko |
Published in: |
Physica A: Statistical Mechanics and its Applications. - Elsevier, ISSN 0378-4371. - Vol. 329.2003, 1, p. 222-230
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Publisher: |
Elsevier |
Subject: | Foreign exchange market | Volatility | Tsallis distribution | χ2-distribution | Brownian motion |
Saved in:
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