Modelling Chaotic Behaviour in Financial Markets

Roijer, F (2015) Modelling Chaotic Behaviour in Financial Markets. Bachelor's Thesis, Industrial Engineering and Management.

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Abstract

Since the beginning of the 20th century, the chaos theory has been applied to several scientific fields like weather prediction and biological phenomena. In recent years researchers have tried to use the chaos theory in order to gain valuable insights in financial markets. Contrary to common belief, chaotic behaviour has some structure and thus is predictable to a certain degree. Several researchers have come up with simplified representations of financial markets. Because these models have similar structures (a set of ordinary differential equations), they are ideal for studying the behaviour of financial markets. This study focusses on the overlap between two of these models to gain insight in the possibilities of adapting a system to adhere to realistic values. The model composed by Ma & Chen is used as a benchmark throughout this study. The problem with this system is the fact that the parameter boundaries are not sufficiently wide enough to cover a realistic spectrum of values. Therefore, a solution has to be found with which the boundaries can be widened. The differential equations essentially consist of two types of terms: parameters and variables. By adding parameters or cross variable terms, the system can be manipulated. As the research will show, additional parameters and cross product terms could have the expected result: modify the simplified systems to comply with realistic values. However, the underlying relations between the parameters and variables are more sensitive than expected.

Item Type:	Thesis (Bachelor's Thesis)
Degree programme:	Industrial Engineering and Management
Thesis type:	Bachelor's Thesis
Language:	English
Date Deposited:	15 Feb 2018 08:05
Last Modified:	15 Feb 2018 08:05
URI:	https://fse.studenttheses.ub.rug.nl/id/eprint/12968

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