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From Disequilibrium Markets to Equilibrium

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  • Christian Lax
  • Torsten Trimborn

Abstract

The modeling of financial markets as disequilibrium models by ordinary differential equations has become a popular modeling tool. One famous example of such a model is the Beja-Goldman model(The Journal of Finance, 1980) which we consider in this paper. We study the passage from disequilibrium dynamics to equilibrium. Mathematically, this limit corresponds to an asymptotic limit also known as a Tikhonov-Fenichel reduction. Furthermore, we analyze the stability of the reduced equilibrium model and discuss the economic implications. We conduct several numerical examples to visualize and support our analysis.

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  • Christian Lax & Torsten Trimborn, 2019. "From Disequilibrium Markets to Equilibrium," Papers 1912.09679, arXiv.org.
    • Handle: RePEc:arx:papers:1912.09679
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    Cited by:

    1. Maximilian Beikirch & Simon Cramer & Martin Frank & Philipp Otte & Emma Pabich & Torsten Trimborn, 2020. "Robust Mathematical Formulation And Probabilistic Description Of Agent-Based Computational Economic Market Models," Advances in Complex Systems (ACS), World Scientific Publishing Co. Pte. Ltd., vol. 23(06), pages 1-41, September.

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