From quantum mechanics to finance: Microfoundations for jumps, spikes and high volatility phases in diffusion price processes

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-...

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Bibliographic Details
Published in:arXiv.org 2016-10
Main Author: Henkel, Christof
Format: Article
Language:English
Subjects:
Quantum mechanics
Quantum physics
Spikes
Volatility
Online Access:Get full text
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Summary: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.
ISSN:2331-8422
DOI:10.48550/arxiv.1609.05286