From quantum mechanics to finance: Microfoundations for jumps, spikes and high volatility phases in diffusion price processes
arXiv:1609.05286 · doi:10.1016/j.physa.2016.11.125
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 Itô-diffusion price processes in the large market limit.
arXiv admin note: text overlap with arXiv:1606.08269