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An interacting-agent model of financial markets from the viewpoint of nonextensive statistical mechanics

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  • Taisei Kaizoji

Abstract

In 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 getting to be influenced by the other traders' investment attitudes [1], and formulate the traders' decision-making regarding investment as the maximum entropy principle for nonextensive entropy. We demonstrate that the equilibrium probability distribution function of the traders' investment attitude is the {\it 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 is based on the collective crowd behavior of many interacting agents.

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  • 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.
  • Handle: RePEc:arx:papers:physics/0601106
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    1. 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. Ryo Murakami & Tomomichi Nakamura & Shin Kimura & Masashi Manabe & Toshihiro Tanizawa, 2014. "On possible origins of trends in financial market price changes," Papers 1406.5276, arXiv.org, revised Nov 2014.
    2. Murakami, Ryo & Nakamura, Tomomichi & Kimura, Shin & Manabe, Masashi & Tanizawa, Toshihiro, 2015. "On possible origins of trends in financial market price changes," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 420(C), pages 179-189.

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