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Market dynamics after large financial crash

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  • G. L. Buchbinder
  • K. M. Chistilin

Abstract

The model describing market dynamics after a large financial crash is considered in terms of the stochastic differential equation of Ito. Physically, the model presents an overdamped Brownian particle moving in the nonstationary one-dimensional potential $U$ under the influence of the variable noise intensity, depending on the particle position $x$. Based on the empirical data the approximate estimation of the Kramers-Moyal coefficients $D_{1,2}$ allow to predicate quite definitely the behavior of the potential introduced by $D_1 = - \partial U /\partial x$ and the volatility $\sim \sqrt{D_2}$. It has been shown that the presented model describes well enough the best known empirical facts relative to the large financial crash of October 1987. \

Suggested Citation

  • G. L. Buchbinder & K. M. Chistilin, 2008. "Market dynamics after large financial crash," Papers 0807.2083, arXiv.org.
    • Handle: RePEc:arx:papers:0807.2083
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    File URL: http://arxiv.org/pdf/0807.2083
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