An interacting-agent model of financial markets from the viewpoint of nonextensive statistical mechanics
AbstractIn this paper we present an interacting-agent model of stock markets. We describe a stock market through an Ising-like model in order to formulate the tendency of traders to be influenced by the other traders’ investment attitudes [Kaizoji, Physica A 287 (2000) 493], and formulate the traders’ decision-making regarding investment as the maximum entropy principle for nonextensive entropy [C. Tsallis, J. Stat. Phys. 52 (1988) 479]. We demonstrate that the equilibrium probability distribution function of the traders’ investment attitude is the q-exponential distribution. We also show that the power-law distribution of the volatility of price fluctuations, which is often demonstrated in empirical studies can be explained naturally by our model which originates in the collective crowd behavior of many interacting-agents.
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Bibliographic InfoArticle provided by Elsevier in its journal Physica A: Statistical Mechanics and its Applications.
Volume (Year): 370 (2006)
Issue (Month): 1 ()
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Web page: http://www.journals.elsevier.com/physica-a-statistical-mechpplications/
Interacting agents; Relative expectation formation; Ising-like model; Nonextensive statistical mechanics; Power-laws of volatility;
Other versions of this item:
- Taisei Kaizoji, 2006. "An interacting-agent model of financial markets from the viewpoint of nonextensive statistical mechanics," Papers physics/0601106, arXiv.org, revised Apr 2006.
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- Silvio M. Duarte Queiros & Celia Anteneodo & Constantino Tsallis, 2005. "Power-law distributions in economics: a nonextensive statistical approach," Papers physics/0503024, arXiv.org.
- Aoki,Masanao, 1998. "New Approaches to Macroeconomic Modeling," Cambridge Books, Cambridge University Press, number 9780521637695, October.
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