An agent behavior based model for diffusion price processes with application to phase transition and oscillations

TL;DR

This paper introduces an agent-based microscopic model for diffusion price processes, linking socio-economic behavior to market dynamics, and explores phenomena like phase transitions and oscillations through herding behavior.

Contribution

It provides a novel framework connecting agent behavior to diffusion price processes and analyzes conditions for convergence and complex market phenomena.

Findings

Herding behavior can induce phase transitions in market prices

Model demonstrates convergence to diffusion processes in large markets

Behavioral factors influence oscillations in price dynamics

Abstract

We present an agent behavior based microscopic model for diffusion price processes. As such we provide a model not only containing a convenient framework for describing socio-economic behavior, but also a sophisticated link to price dynamics. We furthermore establish the circumstances under which the dynamics converge to diffusion processes in the large market limit. To demonstrate the applicability of a separation of behavior and price process, we show how herding behavior of market participants can lead to equilibria transition and oscillations in diffusion price processes.