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Keywords = tulipmania

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17 pages, 11206 KB  
Article
A Mathematical Model of Financial Bubbles: A Behavioral Approach
by Andrei Afilipoaei and Gustavo Carrero
Mathematics 2023, 11(19), 4102; https://doi.org/10.3390/math11194102 - 28 Sep 2023
Cited by 9 | Viewed by 10731
Abstract
In this work, we propose a mathematical model to describe the price trends of unsustainable growth, abrupt collapse, and eventual stabilization characteristic of financial bubbles. The proposed model uses a set of ordinary differential equations to depict the role played by social contagion [...] Read more.
In this work, we propose a mathematical model to describe the price trends of unsustainable growth, abrupt collapse, and eventual stabilization characteristic of financial bubbles. The proposed model uses a set of ordinary differential equations to depict the role played by social contagion and herd behavior in the formation of financial bubbles from a behavioral standpoint, in which the market population is divided into neutral, bull (optimistic), bear (pessimistic), and quitter subgroups. The market demand is taken to be a function of both price and bull population, and the market supply is taken to be a function of both price and bear population. In such a manner, the spread of optimism and pessimism controls the supply and demand dynamics of the market and offers a dynamical characterization of the asset price behavior of a financial bubble. Full article
(This article belongs to the Special Issue Mathematical Developments in Modeling Current Financial Phenomena)
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