Price Equations with Symmetric Supply/Demand; Implications for Fat Tails

Economic Letters, 176 (2019) 79–82

8 Pages Posted: 12 Aug 2019

See all articles by Carey Caginalp

Carey Caginalp

University of Pittsburgh; Chapman University

Gunduz Caginalp

University of Pittsburgh - Department of Mathematics

Date Written: October 14, 2018

Abstract

Implementing a set of microeconomic criteria, we develop price dynamics equations using a function of demand/supply with key symmetry properties. The function of demand/supply can be linear or nonlinear. The type of function determines the nature of the tail of the distribution based on the randomness in the supply and demand. For example, if supply and demand are normally distributed, and the function is assumed to be linear, then the density of relative price change has behavior x−2 for large x (i.e., large deviations). The exponent approaches −1 if the function of supply and demand involves a large exponent. The falloff is exponential, i.e., e-x, if the function of supply and demand is logarithmic.

Keywords: Price Dynamics, Fat Tails, Supply/Demand, Asset Flow Equations

JEL Classification: G2, G4, D0, D4, D9

Suggested Citation

Caginalp, Carey and Caginalp, Gunduz, Price Equations with Symmetric Supply/Demand; Implications for Fat Tails (October 14, 2018). Economic Letters, 176 (2019) 79–82, Available at SSRN: https://ssrn.com/abstract=3434051

Carey Caginalp

University of Pittsburgh

Pittsburgh, PA 15260
United States

Chapman University ( email )

One University Dr.
Orange, CA 92866
United States

Gunduz Caginalp (Contact Author)

University of Pittsburgh - Department of Mathematics ( email )

507 Thackeray Hall
Pittsburgh, PA 15260
United States
412-624-8339 (Phone)
412-624-8397 (Fax)

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