Mesoscopic modelling of financial markets (Q1012703): Difference between revisions

The paper belongs to the crossover between theory of financial markets and kinetic theory methods of statistical mechanics. Simple models of financial markets are based on the individual agent behavior (microscopic domain). The ideas borrowed from the theory of dilute gases have an impact on so-called mesoscopic modelling, where the distribution of wealth is introduced. This allows to assign to each agent a probability to have a definite wealth. The microscopic model due to \textit{M. Levy, H. Levy} and \textit{S. Solomon} [Econ. Lett. 45, No. 1, 103--111 (1994; Zbl 0800.90163); Microscopic simulation of financial markets: from investor behaviour to market phenomena. (Academic Press, San Diego) (2000)] amounts to a passage from microscopic simulations of financial markets (investor behavior) to overall market phenomena (a mesoscopic level). Technically, a linear Boltzmann equation for the wealth distribution is employed, that is coupled with an equation for the price of the stock. In a suitable scaling limit the Fokker-Planck equation is obtained. Its solutions are shown to admit, in the large time asymptotic, a self-similar log-normal behavior. Numerical simulations of the proposed kinetic equations follow. A possible relationship of the kinetic model to Black-Scholes type equations is conjectured.