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From quantum mechanics to finance: Microfoundations for jumps, spikes and high volatility phases in diffusion price processes

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  • Henkel, Christof

Abstract

We present an agent behavior based microscopic model that induces jumps, spikes and high volatility phases in the price process of a traded asset. We transfer dynamics of thermally activated jumps of an unexcited/excited two state system discussed in the context of quantum mechanics to agent socio-economic behavior and provide microfoundations. After we link the endogenous agent behavior to price dynamics we establish the circumstances under which the dynamics converge to an Itô-diffusion price processes in the large market limit.

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  • Henkel, Christof, 2017. "From quantum mechanics to finance: Microfoundations for jumps, spikes and high volatility phases in diffusion price processes," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 469(C), pages 447-458.
    • Handle: RePEc:eee:phsmap:v:469:y:2017:i:c:p:447-458
    DOI: 10.1016/j.physa.2016.11.125
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