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Spin models as microfoundation of macroscopic financial market models

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  • Sebastian M. Krause
  • Stefan Bornholdt

Abstract

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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  • Sebastian M. Krause & Stefan Bornholdt, 2011. "Spin models as microfoundation of macroscopic financial market models," Papers 1103.5345, arXiv.org.
    • Handle: RePEc:arx:papers:1103.5345
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    Cited by:

    1. Tetsuya Takaishi, 2014. "Analysis of Spin Financial Market by GARCH Model," Papers 1409.0118, arXiv.org.
    2. Sven Banisch & Ricardo Lima, 2015. "Markov Chain Aggregation For Simple Agent-Based Models On Symmetric Networks: The Voter Model," Advances in Complex Systems (ACS), World Scientific Publishing Co. Pte. Ltd., vol. 18(03n04), pages 1-20.

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