Dynamical model of financial markets: fluctuating ‘temperature’ causes intermittent behavior of price changes

✍ Scribed by Naoki Kozuki; Nobuko Fuchikami

• Publisher: Elsevier Science
• Year: 2003
• Tongue: English
• Weight: 369 KB
• Volume: 329
• Category: Article
• ISSN: 0378-4371
• DOI: 10.1016/s0378-4371(03)00592-2

✦ Synopsis

We present a model of ÿnancial markets originally proposed for a turbulent ow, 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' uctuates slowly. The model generally yields a fat-tailed distribution of the price change. Speciÿcally a Tsallis distribution is obtained if the inverse temperature is 2 -distributed, which qualitatively agrees with intraday data of foreign exchange market. The so-called 'volatility', a quantity indicating the risk or activity in ÿnancial markets, corresponds to the temperature of markets and its uctuation leads to intermittency.