Physics (Internal)

A Three State Opinion Formation Model for Financial Markets

This event is part of the Departmental Seminars.

Dissertation Committee: H.E. Stanley, Andre Vilela, David Campbell, Kenric Nelson, John Butler

Abstract

An opinion formation model is proposed for the purpose of simulating the dynamics of a financial market. In order to mimic the heterogeneous composition of the mass of investors in a market, two different types of traders are considered: noise traders and contrarians. Agents are represented as nodes in a network and they can assume any of three distinct possible states. The time evolution of the state of an agent is dictated by probabilistic dynamics that include both local and global interactions. A noise trader is subject to local interactions, tending to assume the majority state of its nearest neighbors, whilst a contrarian is subject to a global interaction with the market as a whole, tending to assume the state of the global minority of the market.