A nonextensive approach to the dynamics of financial observables

DOI10.1140/EPJB/E2006-00205-YzbMATH Open1189.91233arXivphysics/0601222OpenAlexW2120111799MaRDI QIDQ978850FDOQ978850

Authors: J. Martínez 

Publication date: 25 June 2010

Published in: The European Physical Journal B. Condensed Matter and Complex Systems (Search for Journal in Brave)

Abstract: We present results about financial market observables, specifically returns and traded volumes. They are obtained within the current nonextensive statistical mechanical framework based on the entropy $S_q=kfrac1-sumlimit{s}_{i=1}^W{p}_i^{q}1-q(qinRe)$ ($S_{1}equiv{S}_{BG}=-ksumlimit{s}_{i=1}^W{p}_{i}ln{p}_i$). More precisely, we present stochastic dynamical mechanisms which mimic probability density functions empirically observed. These mechanisms provide possible interpretations for the emergence of the entropic indices $q$ in the time evolution of the corresponding observables. In addition to this, through multi-fractal analysis of return time series, we verify that the dual relation $q_{stat}+q_{sens}=2$ is numerically satisfied, $q_{stat}$ and $q_{sens}$ being associated to the probability density function and to the sensitivity to initial conditions respectively. This type of simple relation, whose understanding remains ellusive, has been empirically verified in various other systems.

Full work available at URL: https://arxiv.org/abs/physics/0601222

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Mathematics Subject Classification ID

Statistical methods; risk measures (91G70) Applications of statistical and quantum mechanics to economics (econophysics) (91B80) Stochastic ordinary differential equations (aspects of stochastic analysis) (60H10) Applications of stochastic analysis (to PDEs, etc.) (60H30) Financial applications of other theories (91G80)

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Cited In (14)

• The rate-controlled constrained-equilibrium approach to far-from-local-equilibrium thermodynamics
• Statistical mechanics of nonlinear nonequilibrium financial markets
• On non-Gaussianity and dependence in financial time series: a nonextensive approach
• Pricing of financial derivatives based on the Tsallis statistical theory
• Criticality and punctuated equilibrium in a spin system model of a financial market
• Analysis of non-stationary dynamics in the financial system
• Analytic approaches of the anomalous diffusion: a review
• Higher-order phase transitions on financial markets
• Scale-invariant occupancy of phase space and additivity of nonextensive entropy \(S_q\)
• Dynamical analogy between economical crisis and earthquake dynamics within the nonextensive statistical mechanics framework
• Nonextensive statistical mechanics and economics
• Inter-occurrence times and universal laws in finance, earthquakes and genomes
• Nonlinear stochastic interacting dynamics and complexity of financial gasket fractal-like lattice percolation
• Stochastic dynamics of \(N\) correlated binary variables and non-extensive statistical mechanics

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