A Stochastic Chartist–Fundamentalist Model with Time Delays
- 131 Downloads
A stochastic chartist–fundamentalist model of speculative asset dynamics in financial markets is developed. The model is represented by a stochastic delay-differential equation (SDDE). The SDDE is then solved using approximation and numerical Monte Carlo methods. The results show that for large time delays, the SDDE generates market-like stock price dynamics that reflect the memory effects of the time delay. The resultant dynamics agree with the empirical observation of the tendency of stock markets to deviate from pure random walk.
KeywordsSpeculative models Stochastic models Delay-differential equations
Unable to display preview. Download preview PDF.
- Anufriev, M. (2007, April). Heterogeneous beliefs under different market architectures. Paper presented at the Workshop on Statistical Physics and Financial Markets, Abdus Salam International Center for Theoretical Physics (ICTP), Trieste, Italy.Google Scholar
- Chiarella, C. (2007, April). The stochastic price dynamics of speculative behavior. Paper presented at the Workshop on Statistical Physics and Financial Markets, Abdus Salam International Center for Theoretical Physics (ICTP), Trieste, Italy.Google Scholar
- Chiarella C., Dieci R., Gardini L. (2002) Speculative behavior and complex asset price dynamics: A global analysis. Journal of Economic Behavior and Organization, 49(2): 173–197Google Scholar
- Johnson N., Jefferies P., Hu P. M. (2002) Financial Market Complexity. Oxford University Press, OxfordGoogle Scholar
- Ohanian, L.E. (1996). When the bubble bursts: Psychology or Fundamentals? Business Review of the Federal Reserve Bank of Philadelphia (Jan–Feb), 3–13.Google Scholar