Dresden 2006 – wissenschaftliches Programm

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AKSOE: Physik sozio-ökonomischer Systeme

AKSOE 2: Financial Markets and Risk Management I

AKSOE 2.5: Vortrag

Montag, 27. März 2006, 12:15–12:45, BAR 205

Endogenous Price Formation: an universal mechanism in financial markets? — •Stefan Reimann — IEW University of Zurich Bluemlisaplstrasse 10 CH - 8006 Zurich

Stylized facts can be roughly divided into three classes: the existence and decay of the autocorrelation of powers of (log)-returns, the non-Gaussian character of the distributions of assets, particularly the presence of semi-heavy tails, and the multiscaling of asset returns. As a stylized model of price dynamics, we propose a multiplicative stochastic process with a price dependent stochastic growth rate. This feedback is due to endogenous price formation generated by demand. This simple model produces the stylized facts mentioned above. Hence it might be deduced that 1.) endogenous price formation is of universal importance on financial markets, while 2.) the stylized facts mentioned today provide too little structure for a more detailed explanation of market mechanisms.