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Proceedings Paper

Dynamical model of foreign exchange markets leading to Tsallis distribution
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Paper Abstract

We present a model of financial markets originally proposed for a turbulent flow, as a dynamic basis of its intermittent behavior. Time evolution of the price change is assumed to be described by Brownian motion in a power-law potential, where the 'temperature' fluctuates slowly. The model generally yields a fat-tailed distribution of the price change. Specifically a Tsallis distribution is obtained if the inverse temperature is χ2-distributed, which qualitatively agrees with intraday data of foreign exchange market. The so-called 'volatility', a quantity indicating the risk or activity in financial markets, corresponds to the temperature of markets and its fluctuation leads to intermittency.

Paper Details

Date Published: 7 May 2003
PDF: 7 pages
Proc. SPIE 5114, Noise in Complex Systems and Stochastic Dynamics, (7 May 2003); doi: 10.1117/12.488772
Show Author Affiliations
Naoki Kozuki, Hitachi High-Technologies Corp. (Japan)
Nobuko Fuchikami, Tokyo Metropolitan Univ. (Japan)


Published in SPIE Proceedings Vol. 5114:
Noise in Complex Systems and Stochastic Dynamics
Lutz Schimansky-Geier; Derek Abbott; Alexander Neiman; Christian Van den Broeck, Editor(s)

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