Dynamical model of foreign exchange markets leading to Tsallis distribution

Naoki Kozuki; Nobuko Fuchikami

doi:10.1117/12.488772

7 May 2003 Dynamical model of foreign exchange markets leading to Tsallis distribution

Naoki Kozuki, Nobuko Fuchikami

Proceedings Volume 5114, Noise in Complex Systems and Stochastic Dynamics; (2003) https://doi.org/10.1117/12.488772
Event: SPIE's First International Symposium on Fluctuations and Noise, 2003, Santa Fe, New Mexico, United States

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.

Citation Download Citation

Naoki Kozuki and 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); https://doi.org/10.1117/12.488772

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