A Langevin approach to stock market fluctuations and crashes

@article{Bouchaud1998ALA,
  title={A Langevin approach to stock market fluctuations and crashes},
  author={J. Bouchaud and R. Cont},
  journal={The European Physical Journal B - Condensed Matter and Complex Systems},
  year={1998},
  volume={6},
  pages={543-550}
}
  • J. Bouchaud, R. Cont
  • Published 1998
  • Physics
  • The European Physical Journal B - Condensed Matter and Complex Systems
Abstract:We propose a non linear Langevin equation as a model for stock market fluctuations and crashes. This equation is based on an identification of the different processes influencing the demand and supply, and their mathematical transcription. We emphasize the importance of feedback effects of price variations onto themselves. Risk aversion, in particular, leads to an “up-down” symmetry breaking term which is responsible for crashes, where “panic” is self reinforcing. It is also… Expand
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