Introducing a price variation limiter mechanism into a behavioral financial market model

Chaos
Ahmad Naimzada, Marina Pireddu

Abstract

In the present paper, we consider a nonlinear financial market model in which, in order to decrease the complexity of the dynamics and to achieve price stabilization, we introduce a price variation limiter mechanism, which in each period bounds the price variation so that the current price is forced to belong to a certain interval determined by the price realization in the previous period. More precisely, we introduce such mechanism into a financial market model in which the price dynamics are described by a sigmoidal price adjustment mechanism characterized by the presence of two asymptotes that bound the price variation and thus the dynamics. We show that the presence of our asymptotes prevents divergence and negativity issues. Moreover, we prove that the basins of attraction are complicated only under suitable conditions on the parameters and that chaos arises just when the price limiters are loose enough. On the other hand, for some suitable parameter configurations, we detect multistability phenomena characterized by the presence of up to three coexisting attractors.

References

Mar 12, 1990·Physical Review Letters·E OttJ A Yorke
Apr 17, 2001·Physical Review. E, Statistical, Nonlinear, and Soft Matter Physics·C Wagner, R Stoop
May 7, 2003·Physical Review Letters·R Stoop, C Wagner
Apr 5, 2014·Chaos·Ahmad Naimzada, Marina Pireddu

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