A structural model of market dynamics, and why it matters

Publication date: Available online 27 June 2019Source: Comptes Rendus PhysiqueAuthor(s): Jonathan Khedair, Reimer KühnAbstractIn this paper, we explore an approach to understanding price fluctuations within a market via considerations of functional dependencies between asset prices. Interestingly, this approach suggests a class of models of a type used earlier to describe the dynamics of real and artificial neural networks. Statistical physics approaches turn out to be suitable for an analysis of their collective properties. In this paper, we first motivate the basic phenomenology and modelling arguments before moving on to discussing some major issues with inference and empirical verification. In particular, we focus on the natural creation of market states through the inclusion of interactions and how these then interfere with inference. This is primarily addressed in a synthetic setting. Finally we investigate real data to test the ability of our approach to capture some key features of the behaviour of financial markets.RésuméDans cet article, nous explorons une approche permettant de comprendre les fluctuations de prix au sein d'un marché en tenant compte des dépendances fonctionnelles entre les prix des actifs. Cette approche suggère une classe de modèles d'un type utilisé précédemment pour décrire la dynamique des réseaux neuronaux réels et artificiels. Les approches de la physique statistique s'avèrent appropriées pour l'analyse de leurs propriétés co...
Source: Comptes Rendus Physique - Category: Physics Source Type: research