From quantum mechanics to finance: Microfoundations for jumps, spikes and high volatility phases in diffusion price processes
Trading and Market Microstructure
2017-02-01 v2 Economics
Abstract
We present an agent behavior based microscopic model that induces jumps, spikes and high volatility phases in the price process of a traded asset. We transfer dynamics of thermally activated jumps of an unexcited/ excited two state system discussed in the context of quantum mechanics to agent socio-economic behavior and provide microfoundations. After we link the endogenous agent behavior to price dynamics we establish the circumstances under which the dynamics converge to an It\^o-diffusion price processes in the large market limit.
Cite
@article{arxiv.1609.05286,
title = {From quantum mechanics to finance: Microfoundations for jumps, spikes and high volatility phases in diffusion price processes},
author = {Christof Henkel},
journal= {arXiv preprint arXiv:1609.05286},
year = {2017}
}
Comments
arXiv admin note: text overlap with arXiv:1606.08269