Spin models as microfoundation of macroscopic financial market models

Details Spin models as microfoundation of macroscopic financial market models Spin models as microfoundation of macroscopic financial market models

2011-03-28

arxiv.org/abs/1103.5345v1

Economy

Quantitative Finance

Pricing of Securities

4 pages, 4 figures

Scientific paper

Macroscopic price evolution models are commonly used for investment strategies. There are first promising achievements in defining microscopic agent based models for the same purpose. Microscopic models allow a deeper understanding of mechanisms in the market than the purely phenomenological macroscopic models, and thus bear the chance for better models for market regulation. We exemplify this strategy in a case study, deducing a macroscopic Langevin equation from a microscopic spin market model closely related to the Ising model. The interplay of the microscopic and the macroscopic view allows for a better understanding of the microscopic model, as well, and may guide the construction of agent based market models as basis of macroscopic price models.

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