STABILITY ANALYSIS WITH APPLICATIONS OF A TWO-DIMENSIONAL DYNAMICAL SYSTEM ARISING FROM A STOCHASTIC MODEL FOR AN ASSET MARKET

DOI10.1142/S0219493711003462zbMATH Open1223.91023arXiv0909.4815MaRDI QIDQ3094465FDOQ3094465

Authors: Vladimir Belitsky, Antônio L. Pereira, Fernando Pigeard de Almeida Prado 

Publication date: 25 October 2011

Published in: Stochastics and Dynamics (Search for Journal in Brave)

Abstract: We analyze the stability properties of equilibrium solutions and periodicity of orbits in a two-dimensional dynamical system whose orbits mimic the evolution of the price of an asset and the excess demand for that asset. The construction of the system is grounded upon a heterogeneous interacting agent model for a single risky asset market. An advantage of this construction procedure is that the resulting dynamical system becomes a macroscopic market model which mirrors the market quantities and qualities that would typically be taken into account solely at the microscopic level of modeling. The system's parameters correspond to: (a) the proportion of speculators in a market; (b) the traders' speculative trend; (c) the degree of heterogeneity of idiosyncratic evaluations of the market agents with respect to the asset's fundamental value; and (d) the strength of the feedback of the population excess demand on the asset price update increment. This correspondence allows us to employ our results in order to infer plausible causes for the emergence of price and demand fluctuations in a real asset market. The employment of dynamical systems for studying evolution of stochastic models of socio-economic phenomena is quite usual in the area of heterogeneous interacting agent models. However, in the vast majority of the cases present in the literature, these dynamical systems are one-dimensional. Our work is among the few in the area that construct and study two-dimensional dynamical systems and apply them for explanation of socio-economic phenomena.

Full work available at URL: https://arxiv.org/abs/0909.4815

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zbMATH Keywords

stabilityattractorsperiodic orbitstwo-dimensional dynamical systemomega-limita single risky asset market modelconvergence and oscillation of market asset price and demandheterogeneous interacting agent model

Mathematics Subject Classification ID

Dynamical systems in optimization and economics (37N40) Applications of statistical and quantum mechanics to economics (econophysics) (91B80) Applications of difference equations (39A60) Economic dynamics (91B55) Heterogeneous agent models (91B69)

Cites Work

• Handbook of computational economics. Vol. 2: Agent-based computational economics
• VOLATILITY CLUSTERING IN FINANCIAL MARKETS: A MICROSIMULATION OF INTERACTING AGENTS
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Cited In (8)

• Cycles of cooperation and free-riding in social systems
• Multi-group asset flow equations and stability
• Asset price dynamics for a two-asset market system
• Local stability analysis of a stochastic evolutionary financial market model with a risk-free asset
• Stability analysis of asset flow differential equations
• Stability analysis of a cobweb model with market interactions
• Title not available (Why is that?)
• Stabilization of jump values of stocks and bonds in the \((B,S)\)-market model

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