Dresden 2006 – scientific programme

Parts | Days | Selection | Search | Downloads | Help

AKSOE: Physik sozio-ökonomischer Systeme

AKSOE 14: Financial Markets and Risk Management III

AKSOE 14.1: Talk

Thursday, March 30, 2006, 16:00–16:30, BAR 205

Application of Zhangs Square Root Law and Herding to Financial Markets — •Friedrich Wagner — Institut fuer theoretische Physik, Universitaet Kiel, Leibnizstr.15, D-24098 Kiel

We apply an asymmetric version of Kirman’s herding model to volatile financial markets. In the relation between returns and agent concentration we use the square root law proposed by Zhang. This can be derived by extending the idea of a critical mean field theory suggested by Plerou et al. We show that this model is equivalent to the so called 3/2-model of stochastic volatility. The description of the unconditional distribution for the absolute returns is in good agreement with the DAX independent whether one uses the square root or a conventional linear relation. Only the statistic of extreme events prefers the former. The description of the autocorrelations are in much better agreement for the square root law. The volatility clusters are described by a scaling law for the distribution of returns conditional to the value at the previous day in good agreement with the data.