Expectations, Price Fluctuations and Lorenz Attractor

Olkhov, Victor (2018): Expectations, Price Fluctuations and Lorenz Attractor.

Abstract

This paper describes expectations and Buy-Sell transactions of assets as ground for modeling trading volume and price fluctuations. We study simple model of mutual relations between transactions and expectations and derive economic equations that describe disturbances of asset prices, trading volumes and expectations. For simple example we obtain harmonic oscillations for price fluctuations. We show that our economic equations can take form of Lorenz attractor and price fluctuations can follow chaotic trajectories. Our approach allows apply methods of dynamical systems for modeling chaotic behavior of economic and financial systems.

• Item Type: MPRA Paper
• Language: English
• Keywords: Price Fluctuations; Expectations; Economic Space; Lorenz attractor
• Subjects: C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C60 - General; E - Macroeconomics and Monetary Economics > E0 - General > E00 - General; E - Macroeconomics and Monetary Economics > E0 - General > E03 - Behavioral Macroeconomics; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E30 - General; G - Financial Economics > G0 - General > G02 - Behavioral Finance: Underlying Principles; G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing ; Trading Volume ; Bond Interest Rates; G - Financial Economics > G1 - General Financial Markets > G17 - Financial Forecasting and Simulation

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