A Langevin Approach to Stock Market Fluctuations and Crashes

Details A Langevin Approach to Stock Market Fluctuations and Crashes A Langevin Approach to Stock Market Fluctuations and Crashes

1998-01-27

arxiv.org/abs/cond-mat/9801279v2

Physics

Condensed Matter

19 pages, 2 .ps figures, minor changes and one equation added. Submitted to European Journal of Physics B

Scientific paper

10.1007/s100510050582

We propose a non linear Langevin equation as a model for stock market fluctuations and crashes. This equation is based on an identification of the different processes influencing the demand and supply, and their mathematical transcription. We emphasize the importance of feedback effects of price variations onto themselves. Risk aversion, in particular, leads to an up-down symmetry breaking term which is responsible for crashes, where `panic' is self reinforcing. It is also responsible for the sudden collapse of speculative bubbles. Interestingly, these crashes appear as rare, `activated' events, and have an exponentially small probability of occurence. We predict that the shape of the falldown of the price during a crash should be logarithmic. The normal regime, where the stock price exhibits behavior similar to that of a random walk, however reveals non trivial correlations on different time scales, in particular on the time scale over which operators perceive a change of trend.

Affiliated with

Also associated with

No associations

Rating

A Langevin Approach to Stock Market Fluctuations and Crashes does not yet have a rating. At this time, there are no reviews or comments for this scientific paper.

If you have personal experience with A Langevin Approach to Stock Market Fluctuations and Crashes, we encourage you to share that experience with our LandOfFree.com community. Your opinion is very important and A Langevin Approach to Stock Market Fluctuations and Crashes will most certainly appreciate the feedback.

Rate now

Comments { 0 }

Profile ID: LFWR-SCP-O-162480