Stock Market Modeling in the Langevin Formalism
Published: 2018
Author(s) Name: J. P. Singh |
Author(s) Affiliation: Professor, Department of Management Studies, Indian Institute of Technology, Roorkee, Utarakhand
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Abstract
A Langevin formalism is proposed for stock market dynamics with modeling of various economic market features from first principles. Various processes and effects that occur in the stock market are mathematically incorporated in the said formulation. The Fokker Planck equation corresponding to the Langevin equation so obtained is solved and shows deviation from Gaussian behavior of the rate of change of stock price PDF. The deviation relates to factors such as market efficiency, market depth, liquidity of the relevant stock and informational asymmetries.
Keywords: Stock Market, Langevin Equation, Fokker Planck Equation, Black Scholes Model, Market Microstructure
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