An Evolutionary Quantum Game Model of Financial Market Dynamics - Theory and Evidence

80 Pages Posted: 23 Apr 2007  

Carlos Pedro dos Santos Gonçalves

Instituto Superior de Ciências Sociais e Políticas, University of Lisbon

Carlos Gonçalves

University Institute of Lisbon (IUL) - School of Business

Date Written: April 23, 2007

Abstract

The application of mathematical physics to economics has seen a recent development in the form of quantum game theory. Quantum game theory has become an important field of research in multidisciplinary applications of mathematical physics to the study of economic phenomena.

We address the empirical findings of multifractality and turbulence in financial markets' dynamics, from the point of view of evolutionary quantum game theory, proposing a quantum game theoretical model of a financial market, that extends the behavioral framework proposed by Sornette and Zhou for the self-fulfilling Ising model of the markets.

The quantum market model works with a bosonic framework for evolutionary quantum game theory introduced here and is based on recent findings within neuroeconomics and the neurobiology of decision.

The model is tested against actual market data, where it is shown that it is able to reproduce some of the main multifractal signatures present in actual markets.

Keywords: Bosonic Evolutionary Quantum Game Theory, Multifractals, Market Turbulence, Econophysics

JEL Classification: C73, G10, G14, G32, D83, D84, D87

Suggested Citation

Gonçalves, Carlos Pedro dos Santos and Gonçalves, Carlos, An Evolutionary Quantum Game Model of Financial Market Dynamics - Theory and Evidence (April 23, 2007). Available at SSRN: https://ssrn.com/abstract=982086 or http://dx.doi.org/10.2139/ssrn.982086

Carlos Pedro Dos Santos Gonçalves (Contact Author)

Instituto Superior de Ciências Sociais e Políticas, University of Lisbon ( email )

Rua Almerindo Lessa
1300-663 Lisboa
Portugal

HOME PAGE: http://sites.google.com/site/carlospedrogoncalves/

Carlos Gonçalves

University Institute of Lisbon (IUL) - School of Business ( email )

Complexo INDEG/ISCTE
Av. Prof. Anibal Bettencourt
1600-189 Lisboa, 1649-026
Portugal

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