A Dynamical Thermostat Approach To Financial Asset Price Dynamics

Details A Dynamical Thermostat Approach To Financial Asset Price Dynamics A Dynamical Thermostat Approach To Financial Asset Price Dynamics

2000-11-16

arxiv.org/abs/cond-mat/0011286v1

Physics

Condensed Matter

contribution to the 6th Granada Seminar 2000: Modeling Complex Systems, 10 pages, eps figures

Scientific paper

10.1063/1.1386819

A dynamical price formation model for financial assets is presented. It aims to capture the essence of speculative trading where mispricings of assets are used to make profits. It is shown that together with the incorporation of the concept of risk aversion of agents the model is able to reproduce several key characteristics of financial price series. The approach is contrasted to the conventional view of price formation in financial economics.

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