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Stochastic process with multiplicative structure for the dynamic behavior of the financial market

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  • Lima, Leonardo S.
  • Santos, Greicy K.C.

Abstract

A stochastic model with multiplicative noise has been proposed as a mathematical model for the prices dynamics of the financial market. We have presented a model which allows us to test within the same framework the comparative explanatory power of rational agents versus irrational agents with respect to facts of the financial market. We calculate the long range memory of the model and studied the behavior of the long tail distribution of the cumulative distribution of probabilities for the model with additive and multiplicative noise.

Suggested Citation

  • Lima, Leonardo S. & Santos, Greicy K.C., 2018. "Stochastic process with multiplicative structure for the dynamic behavior of the financial market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 512(C), pages 222-229.
    • Handle: RePEc:eee:phsmap:v:512:y:2018:i:c:p:222-229
    DOI: 10.1016/j.physa.2018.08.049
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    References listed on IDEAS

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    1. Mantegna,Rosario N. & Stanley,H. Eugene, 2007. "Introduction to Econophysics," Cambridge Books, Cambridge University Press, number 9780521039871.
    2. Fred Espen Benth & Jūratė Šaltytė Benth & Steen Koekebakker, 2008. "Stochastic Modeling of Electricity and Related Markets," World Scientific Books, World Scientific Publishing Co. Pte. Ltd., number 6811, January.
    3. Silvio M. Duarte Queiros & Celia Anteneodo & Constantino Tsallis, 2005. "Power-law distributions in economics: a nonextensive statistical approach," Papers physics/0503024, arXiv.org.
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    Cited by:

    1. Xing, Dun-Zhong & Li, Hai-Feng & Li, Jiang-Cheng & Long, Chao, 2021. "Forecasting price of financial market crash via a new nonlinear potential GARCH model," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 566(C).

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    Keywords

    stochastic model;

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