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Stability and bifurcation in a simple heterogeneous asset pricing model


  • Ke, Xiaoling
  • Shi, Ke


Stability and bifurcation analysis of deterministic systems has been widely used in modeling financial markets. We develop a simple pricing model with two types of rational traders, fundamentalists and chartists, in order to study well price behavior in financial markets, we use student t distribution to replace traditional normal distribution to describe fundamental price process. We study the stability and bifurcation of the underling deterministic system and use numerical simulation to study the dynamic of the stochastic system, including autocorrelations structures and high kurtosis of the returns. It is found that the fundamental price becomes stable (unstable) when the activities from both types of traders are balanced (unbalanced).

Suggested Citation

  • Ke, Xiaoling & Shi, Ke, 2009. "Stability and bifurcation in a simple heterogeneous asset pricing model," Economic Modelling, Elsevier, vol. 26(3), pages 680-688, May.
  • Handle: RePEc:eee:ecmode:v:26:y:2009:i:3:p:680-688

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    References listed on IDEAS

    1. Gaunersdorfer, Andrea & Hommes, Cars H. & Wagener, Florian O.O., 2008. "Bifurcation routes to volatility clustering under evolutionary learning," Journal of Economic Behavior & Organization, Elsevier, vol. 67(1), pages 27-47, July.
    2. C. Chiarella & X-Z. He, 2001. "Asset price and wealth dynamics under heterogeneous expectations," Quantitative Finance, Taylor & Francis Journals, vol. 1(5), pages 509-526.
    3. Chiarella, Carl & He, Xue-Zhong & Hommes, Cars, 2006. "A dynamic analysis of moving average rules," Journal of Economic Dynamics and Control, Elsevier, vol. 30(9-10), pages 1729-1753.
    4. William A. Brock & Cars H. Hommes, 1997. "A Rational Route to Randomness," Econometrica, Econometric Society, vol. 65(5), pages 1059-1096, September.
    5. Chiarella, Carl & He, Xue-Zhong, 2003. "Heterogeneous Beliefs, Risk, And Learning In A Simple Asset-Pricing Model With A Market Maker," Macroeconomic Dynamics, Cambridge University Press, vol. 7(04), pages 503-536, September.
    6. Chiarella, Carl & Dieci, Roberto & Gardini, Laura, 2002. "Speculative behaviour and complex asset price dynamics: a global analysis," Journal of Economic Behavior & Organization, Elsevier, vol. 49(2), pages 173-197, October.
    7. Brock, William A. & Hommes, Cars H., 1998. "Heterogeneous beliefs and routes to chaos in a simple asset pricing model," Journal of Economic Dynamics and Control, Elsevier, vol. 22(8-9), pages 1235-1274, August.
    8. Carl Chiarella & Xue-Zhong He & Duo Wang, 2004. "A Behavioural Asset Pricing Model with a Time-Varying Second Moment," Research Paper Series 141, Quantitative Finance Research Centre, University of Technology, Sydney.
    9. Xue-Zhong He & Youwei Li, 2005. "Heterogeneity, Profitability and Autocorrelations," Research Paper Series 147, Quantitative Finance Research Centre, University of Technology, Sydney.
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