Tramontana, Fabio Westerhoff, Frank Gardini, Laura
Year of Publication:
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