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A Stochastic Chartist–Fundamentalist Model with Time Delays

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  • Ghassan Dibeh
  • Haidar Harmanani

Abstract

A stochastic chartist–fundamentalist model of speculative asset dynamics in financial markets is developed. The model is represented by a stochastic delay-differential equation (SDDE). The SDDE is then solved using approximation and numerical Monte Carlo methods. The results show that for large time delays, the SDDE generates market-like stock price dynamics that reflect the memory effects of the time delay. The resultant dynamics agree with the empirical observation of the tendency of stock markets to deviate from pure random walk. Copyright Springer Science+Business Media New York 2012

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  • Ghassan Dibeh & Haidar Harmanani, 2012. "A Stochastic Chartist–Fundamentalist Model with Time Delays," Computational Economics, Springer;Society for Computational Economics, vol. 40(2), pages 105-113, August.
    • Handle: RePEc:kap:compec:v:40:y:2012:i:2:p:105-113
    DOI: 10.1007/s10614-012-9329-8
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    References listed on IDEAS

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    9. Dibeh, Ghassan, 2007. "Contagion effects in a chartist–fundamentalist model with time delays," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 382(1), pages 52-57.
    10. Carl Chiarella & Xue-Zhong He & Min Zheng, 2007. "The Stochastic Dynamics of Speculative Prices," Research Paper Series 208, Quantitative Finance Research Centre, University of Technology, Sydney.
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