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Tramontana, Fabio
Westerhoff, Frank
Gardini, Laura
Year of Publication: 
Series/Report no.: 
Quaderni di Dipartimento 150
We present a simple financial market model with interacting chartists and fundamentalists. Since some of these speculators only become active when a certain misalignment level has been crossed, the dynamics are driven by a discontinuous piecewise linear map. The model endogenously generates bubbles and crashes and excess volatility for a broad range of parameter values - and thus explains some key phenomena of financial markets. Moreover, we provide a complete analytical study of the model's dynamical system. One of its surprising features is that model simulations may appear to be chaotic, although only regular dynamics can emerge.
financial market crisis
bull and bear market dynamics
discontinuous piecewise linear maps
border-collision bifurcations
period adding scheme
Document Type: 
Working Paper

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