7 May 2003 Dynamical model of foreign exchange markets leading to Tsallis distribution
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Proceedings Volume 5114, Noise in Complex Systems and Stochastic Dynamics; (2003); doi: 10.1117/12.488772
Event: SPIE's First International Symposium on Fluctuations and Noise, 2003, Santa Fe, New Mexico, United States
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.
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Naoki Kozuki, Nobuko Fuchikami, "Dynamical model of foreign exchange markets leading to Tsallis distribution", Proc. SPIE 5114, Noise in Complex Systems and Stochastic Dynamics, (7 May 2003); doi: 10.1117/12.488772; https://doi.org/10.1117/12.488772


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