Kinetic models for socio-economic dynamics of speculative markets

TL;DR

This paper introduces a kinetic model for financial markets with chartists and fundamentalists, analyzing price dynamics and investment behaviors, revealing regimes of lognormal and power-law distributions.

Contribution

It presents a simplified kinetic framework inspired by Lux-Marchesi to study asymptotic investment and price distributions in speculative markets.

Findings

Identification of regimes with lognormal price distributions

Characterization of power law tails in price distributions

Analysis of investment behavior asymptotics

Abstract

In this paper we introduce a simple model for a financial market characterized by a single stock or good and an interplay between two different traders populations, chartists and fundamentalists, which determine the price dynamic of the stock. The model has been inspired by the microscopic Lux-Marchesi model (T.Lux, M.Marchesi, Nature 397, (1999), 498--500). The introduction of kinetic equations permits to study the asymptotic behavior of the investments and the price distributions and to characterize the regimes of lognormal behavior and the formation of power law tails.