A structural model of market dynamics, and why it matters

Jonathan Khedair; Reimer Kühn

doi:10.1016/j.crhy.2019.05.013

From statistical physics to social sciences / De la physique statistique aux sciences sociales

A structural model of market dynamics, and why it matters
[Un modèle structurel de la dynamique des marchés]

Jonathan Khedair ¹ ; Reimer Kühn ¹

¹ Department of Mathematics, King's College London, Strand, London WC2R 2LS, UK

Comptes Rendus. Physique, Volume 20 (2019) no. 4, pp. 336-348.

Résumé
Abstract

Dans cet article, nous explorons une approche permettant de comprendre les fluctuations de prix au sein d'un marché en tenant compte des dépendances fonctionnelles entre les prix des actifs. Cette approche suggère une classe de modèles d'un type utilisé précédemment pour décrire la dynamique des réseaux neuronaux réels et artificiels. Les approches de la physique statistique s'avèrent appropriées pour l'analyse de leurs propriétés collectives. Dans cet article, nous motivons d'abord la phénoménologie de base et les arguments de modélisation avant de passer à la discussion de certaines questions majeures avec inférence et vérification empirique. En particulier, nous nous concentrons sur la création naturelle d'états de marché par l'inclusion d'interactions et sur la façon dont celles-ci interfèrent ensuite avec l'inférence. Cette question est principalement abordée dans le cadre de données synthétiques. Enfin, nous examinons des données réelles pour vérifier la capacité de notre approche à saisir certaines caractéristiques clés du comportement des marchés financiers.

In this paper, we explore an approach to understanding price fluctuations within a market via considerations of functional dependencies between asset prices. Interestingly, this approach suggests a class of models of a type used earlier to describe the dynamics of real and artificial neural networks. Statistical physics approaches turn out to be suitable for an analysis of their collective properties. In this paper, we first motivate the basic phenomenology and modelling arguments before moving on to discussing some major issues with inference and empirical verification. In particular, we focus on the natural creation of market states through the inclusion of interactions and how these then interfere with inference. This is primarily addressed in a synthetic setting. Finally we investigate real data to test the ability of our approach to capture some key features of the behaviour of financial markets.

Publié le : 2019-05-01

DOI : 10.1016/j.crhy.2019.05.013

Keywords: Market risk, Phase transitions, Generating functional analysis
Mot clés : Risque de marché, Transitions de phase, Méthode de la fonctionnelle génératrice

Affiliations des auteurs :

Jonathan Khedair ¹ ; Reimer Kühn ¹

¹ Department of Mathematics, King's College London, Strand, London WC2R 2LS, UK

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Jonathan Khedair; Reimer Kühn. A structural model of market dynamics, and why it matters. Comptes Rendus. Physique, Volume 20 (2019) no. 4, pp. 336-348. doi : 10.1016/j.crhy.2019.05.013. https://comptes-rendus.academie-sciences.fr/physique/articles/10.1016/j.crhy.2019.05.013/

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