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

  • Taisei Kaizoji

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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File URL: http://arxiv.org/pdf/physics/0601106
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Paper provided by arXiv.org in its series Papers with number physics/0601106.

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Date of creation: Jan 2006
Date of revision: Apr 2006
Publication status: Published in Physica A370 (2006) 109-113
Handle: RePEc:arx:papers:physics/0601106
Contact details of provider: Web page: http://arxiv.org/

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  1. repec:cup:cbooks:9780521637695 is not listed on IDEAS
  2. 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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