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Price dynamics of the financial markets using the stochastic differential equation for a potential double well

Author

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  • Lima, L.S.
  • Miranda, L.L.B.

Abstract

We have used the Itô’s stochastic differential equation for the double well with additive white noise as a mathematical model for price dynamics of the financial market. We have presented a model which allows us to test within the same framework the comparative explanatory power of rational agents versus irrational agents, with respect to the facts of financial markets. We have obtained the mean price in terms of the β parameter that represents the force of the randomness term of the model.

Suggested Citation

  • Lima, L.S. & Miranda, L.L.B., 2018. "Price dynamics of the financial markets using the stochastic differential equation for a potential double well," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 490(C), pages 828-833.
    • Handle: RePEc:eee:phsmap:v:490:y:2018:i:c:p:828-833
    DOI: 10.1016/j.physa.2017.08.106
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    Cited by:

    1. Fernandes, Leonardo H.S. & Araújo, Fernando H.A., 2020. "Taxonomy of commodities assets via complexity-entropy causality plane," Chaos, Solitons & Fractals, Elsevier, vol. 137(C).
    2. Fernandes, Leonardo H.S. & de Araújo, Fernando H.A. & Silva, Igor E.M., 2020. "The (in)efficiency of NYMEX energy futures: A multifractal analysis," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 556(C).
    3. Yu Shi & Qixuan Luo & Handong Li, 2019. "An Agent-Based Model of a Pricing Process with Power Law, Volatility Clustering, and Jumps," Complexity, Hindawi, vol. 2019, pages 1-10, February.

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