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Journal of Mathematics
Volume 2016, Article ID 7510567, 7 pages
http://dx.doi.org/10.1155/2016/7510567
Research Article

Herd Behavior and Financial Crashes: An Interacting Particle System Approach

Department of Computer Science, University of Verona, Strada le Grazie 15, 37134 Verona, Italy

Received 19 October 2015; Accepted 11 January 2016

Academic Editor: Yonghui Sun

Copyright © 2016 Vincenzo Crescimanna and Luca Di Persio. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Abstract

We provide an approach based on a modification of the Ising model to describe the dynamics of stock markets. Our model incorporates three different factors: imitation, the impact of external news, and private information; moreover, it is characterized by coupling coefficients, static in time, but not identical for each agent. By analogy with physical models, we consider the temperature parameter of the system, assuming that it evolves with memory of the past, hence considering how former news influences realized market returns. We show that a standard Ising potential assumption is not sufficient to reproduce the stylized facts characterizing financial markets; this is because it assigns low probabilities to rare events. Hence, we study a variation of the previous setting providing, also by concrete computations, new insights and improvements.