Herd Behavior and Financial Crashes: An Interacting Particle System Approach
We provide an approach based on a modification of the Ising model to describe the dynamics of stock markets. Our model incorporates three different factors: imitation, the impact of external news, and private information; moreover, it is characterized by coupling coefficients, static in time, but no...
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| Format: | Article |
| Language: | English |
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Wiley
2016-01-01
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| Series: | Journal of Mathematics |
| Online Access: | http://dx.doi.org/10.1155/2016/7510567 |
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| _version_ | 1841524891201830912 |
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| author | Vincenzo Crescimanna Luca Di Persio |
| author_facet | Vincenzo Crescimanna Luca Di Persio |
| author_sort | Vincenzo Crescimanna |
| collection | DOAJ |
| description | We provide an approach based on a modification of the Ising model to describe the dynamics of stock markets. Our model incorporates three different factors: imitation, the impact of external news, and private information; moreover, it is characterized by coupling coefficients, static in time, but not identical for each agent. By analogy with physical models, we consider the temperature parameter of the system, assuming that it evolves with memory of the past, hence considering how former news influences realized market returns. We show that a standard Ising potential assumption is not sufficient to reproduce the stylized facts characterizing financial markets; this is because it assigns low probabilities to rare events. Hence, we study a variation of the previous setting providing, also by concrete computations, new insights and improvements. |
| format | Article |
| id | doaj-art-bd7e5f499d3647f7902f7520c4df1cef |
| institution | Kabale University |
| issn | 2314-4629 2314-4785 |
| language | English |
| publishDate | 2016-01-01 |
| publisher | Wiley |
| record_format | Article |
| series | Journal of Mathematics |
| spelling | doaj-art-bd7e5f499d3647f7902f7520c4df1cef2025-02-03T05:47:15ZengWileyJournal of Mathematics2314-46292314-47852016-01-01201610.1155/2016/75105677510567Herd Behavior and Financial Crashes: An Interacting Particle System ApproachVincenzo Crescimanna0Luca Di Persio1Department of Computer Science, University of Verona, Strada le Grazie 15, 37134 Verona, ItalyDepartment of Computer Science, University of Verona, Strada le Grazie 15, 37134 Verona, ItalyWe provide an approach based on a modification of the Ising model to describe the dynamics of stock markets. Our model incorporates three different factors: imitation, the impact of external news, and private information; moreover, it is characterized by coupling coefficients, static in time, but not identical for each agent. By analogy with physical models, we consider the temperature parameter of the system, assuming that it evolves with memory of the past, hence considering how former news influences realized market returns. We show that a standard Ising potential assumption is not sufficient to reproduce the stylized facts characterizing financial markets; this is because it assigns low probabilities to rare events. Hence, we study a variation of the previous setting providing, also by concrete computations, new insights and improvements.http://dx.doi.org/10.1155/2016/7510567 |
| spellingShingle | Vincenzo Crescimanna Luca Di Persio Herd Behavior and Financial Crashes: An Interacting Particle System Approach Journal of Mathematics |
| title | Herd Behavior and Financial Crashes: An Interacting Particle System Approach |
| title_full | Herd Behavior and Financial Crashes: An Interacting Particle System Approach |
| title_fullStr | Herd Behavior and Financial Crashes: An Interacting Particle System Approach |
| title_full_unstemmed | Herd Behavior and Financial Crashes: An Interacting Particle System Approach |
| title_short | Herd Behavior and Financial Crashes: An Interacting Particle System Approach |
| title_sort | herd behavior and financial crashes an interacting particle system approach |
| url | http://dx.doi.org/10.1155/2016/7510567 |
| work_keys_str_mv | AT vincenzocrescimanna herdbehaviorandfinancialcrashesaninteractingparticlesystemapproach AT lucadipersio herdbehaviorandfinancialcrashesaninteractingparticlesystemapproach |